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Reliance Capital — 1Q: headline earnings
weak, but core strong; Cut SOTP
Price Objective Change
Cut SOTP on earnings cut post weak 1Q headline earnings
We have cut our SOTP by ~13% to Rs565/shr. to factor in a) the earnings cut
(+11/8% for FY12/13) on rising funding costs, post weak 1Q earnings; b) cut in
life ins. value driven by cut in growth and rebasing our NBAP multiples in-line with
sector avg and; c) cut in multiple for consumer fin. biz. by ~10% to 1.2x owing to
headwinds (growth / margins) on weaker macro and low RoEs (~12-13%). But
core earnings (cons. fin, AMC and life ins.) to continue to show an improvement,
as in 1Q. Hence, we believe risk-return stacks in its favor. Maintain Buy.
1Q: weak on high int. costs / general ins. drag; Core strong
R-Cap reported a net profit of Rs348mn in 1Q12 (55% yoy decline). But Cons.
Fin. biz, AMC and Life Ins. continue drive core earnings. Consumer fin. Biz. AUM
growth at 28% yoy and despite rising costs, PBT up +60% yoy on lower credit
costs. Avg. domestic AUM for AMC biz. flat yoy, but PBT higher (+20% yoy) on
better yields. General ins. premia growth strong at 22% yoy. Broking biz. saw flat
PBT yoy, but distribution arm (R-Money) saw PBT jump 9x yoy (but off low base).
Life ins. weak on growth, but reports profit
Reliance Life reported a PBT of Rs79mn in 1QFY12 (vs. loss of Rs1.2bn in 1Q11)
on strong renewal premia, low new biz. strain and, low opex. But new biz. (APE)
declined +60% yoy in 1Q, hence we cut growth est. (new biz.) to flat/10% for
FY12/13. Hence, we cut the value of life ins. biz. by 25% to Rs211/shr. factoring
in cut in growth and cut in future margins / NBAP multiples (7x vs. 9x earlier). We
still value life. Biz. at 1x BofAML est. FY11 EV and 7x FY12 NBAP. Our life ins.
biz. value is +50% lower than the yet to be consummated deal with Nippon Life.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Capital — 1Q: headline earnings
weak, but core strong; Cut SOTP
Price Objective Change
Cut SOTP on earnings cut post weak 1Q headline earnings
We have cut our SOTP by ~13% to Rs565/shr. to factor in a) the earnings cut
(+11/8% for FY12/13) on rising funding costs, post weak 1Q earnings; b) cut in
life ins. value driven by cut in growth and rebasing our NBAP multiples in-line with
sector avg and; c) cut in multiple for consumer fin. biz. by ~10% to 1.2x owing to
headwinds (growth / margins) on weaker macro and low RoEs (~12-13%). But
core earnings (cons. fin, AMC and life ins.) to continue to show an improvement,
as in 1Q. Hence, we believe risk-return stacks in its favor. Maintain Buy.
1Q: weak on high int. costs / general ins. drag; Core strong
R-Cap reported a net profit of Rs348mn in 1Q12 (55% yoy decline). But Cons.
Fin. biz, AMC and Life Ins. continue drive core earnings. Consumer fin. Biz. AUM
growth at 28% yoy and despite rising costs, PBT up +60% yoy on lower credit
costs. Avg. domestic AUM for AMC biz. flat yoy, but PBT higher (+20% yoy) on
better yields. General ins. premia growth strong at 22% yoy. Broking biz. saw flat
PBT yoy, but distribution arm (R-Money) saw PBT jump 9x yoy (but off low base).
Life ins. weak on growth, but reports profit
Reliance Life reported a PBT of Rs79mn in 1QFY12 (vs. loss of Rs1.2bn in 1Q11)
on strong renewal premia, low new biz. strain and, low opex. But new biz. (APE)
declined +60% yoy in 1Q, hence we cut growth est. (new biz.) to flat/10% for
FY12/13. Hence, we cut the value of life ins. biz. by 25% to Rs211/shr. factoring
in cut in growth and cut in future margins / NBAP multiples (7x vs. 9x earlier). We
still value life. Biz. at 1x BofAML est. FY11 EV and 7x FY12 NBAP. Our life ins.
biz. value is +50% lower than the yet to be consummated deal with Nippon Life.
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