8/8/2019 Buy Reliance Capital

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8/8/2019 Buy Reliance Capital

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Company Description_______________________

Reliance Capital is one of India's leading and fastest

growing private sector financial services companies.

It is one of the largest asset management companies

in India. It also offers life insurance and general

insurance products through its subsidiaries. It has

sizable private equity and proprietary investments

and is now pursuing interests in stock broking,

consumer financing and the asset recovery business.

Why Buy?________________________________

Budget10

The Finance Minister has heralded the opening of

the third phase of the opening up of the private

sector banking space. Mr. Pranab Mukherjee in the

budget announced that the Reserve Bank of India

was considering giving some additional banking

license to private sector players, including Non-

Banking finance companies (NBFCs). Reliance

Capital being one of the largest private players in

the space stands to gain from this new development.

Stake sale in Ins. and AMC subject to regulatory

approvals

Reliance Capital is looking to sell minority stakes

in life insurance and asset management ventures to

a strategic investor. R-Cap also likely to divest

Stock Data

Price Rs785.45

Price Objective Rs1,015

Date Established 1-March-2010

Investment Opinion Buy

Volatility Risk HIGH

52-Week Range Rs274.10-Rs1,068

Mrkt Val / Shares Out(mn) US$4,033 / 246.2

Average Daily Volume 2,850,373

ROE (2010E) 10.2%

Free Float 48.0%

8/8/2019 Buy Reliance Capital

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Estimates

Valuations

some stake in general insurance. Also, R-Cap is

looking to list its life insurance venture. We believe

these initiatives may lead to enhanced disclosure

and also impact valuations positively.

Life insurance business moving towards

profitability

R-Cap has outlined major initiatives, which we

believe will lead to better core profitability going

ahead. In its life insurance business, given that 70%

of its biz. comes from tier 3&4 cities, NBAP

margins will likely come down to 18.5% from

(+20% now), but various cost saving initiatives like

reducing agency manager (high fixed cost) base

should enhance profitability of the life business.

Also, co. is looking to increase its traditional biz.

(7%) to enhance profitability. Company is lookingto break even by FY11.

In the light of this information we recommend a

BUY call for Relaince Capital at the current market

price.

(Rs) 2009A 2010ENet Income (Adjusted - mn) 10,157 7,940EPS 41.26 32.25

EPS Change (YoY) 0.7% -21.8%Book Value / Share 302.79 327.54

2009A 2010EP/E 18.6x 23.7xDividend Yield 0.849% 0.980%Price / Book 2.53x 2.34xRoE / PB 5.71x 4.38x