Reliance Capital Research Report By ICICI-Direct

Businesses growing, return ratios improving…

• Reliance Capital reported a PAT of Rs 428 crore reporting growth of 2% YoY, 36% QoQ led by gain of Rs 100 crore from Sula Vineyards sale. Marginally slower growth was seen on the consolidated topline front with revenues declining 2% YoY to Rs 5008 crore on impact of AMC IPO and lower life NBP premiums. One-time capital gains continued from IPO in AMC in FY18 with PAT numbers growing 21% YoY to Rs 1309 crore. Home finance, general insurance and AMC recorded strong growth in PBT

• For Reliance AMC (listed), topline and PAT grew 20% and 24% YoY to Rs 489 crore and Rs 153 crore, respectively. It grew 24% YoY to Rs 130 crore. Due to market correction, MF AUM grew 16% YoY to Rs 245000 crore vs. a surge of 24% YoY in Q3

• The home finance business (listed) continued the healthy growth of 46% YoY in AUM to Rs 16379 crore. NII and PBT came in at Rs 141.8 crore, up 16% YoY and Rs 90 crore, up 119% YoY, respectively. PAT appears lower at Rs 57 crore in Q4FY18 vs. Rs 108 crore in Q4FY17 mainly due to tax write-back in Q4FY17

• General insurance reported growth of 36% YoY in gross written premium at Rs 1081 crore. PAT grew 9% YoY to Rs 46 crore. Combined ratio in Q4 was at 113%, increasing from 114% QoQ. It was 104% in Q1. The IPO is seen coming in the near term

• Commercial finance and life insurance remained subdued. LI reported marginal PAT of Rs 34 crore for Q4 and Rs 1 crore for FY18

Standalone company turns core investment company from FY17

Reliance Capital has demerged its home finance. The standalone company is a pure core investment company (CIC) three businesses, general insurance (pending), HFC (done) AMC (done) were to be listed.

Individual businesses treading well, investments, debt overhang stays

Individual subsidiaries have reported strong earnings and a continuous improvement trajectory. Housing finance and AMC are already listed while general insurance is expected to come soon. We expect PAT to grow at 17% CAGR in FY18-20E to Rs 1761 crore. We expect RoE to move to double digit by FY19E with improving RoE of individual businesses. Accordingly, we value the stock at Rs 660 per share on an SoTP basis. We maintain our BUY rating on the stock. The expected IPO of GI is expected in 2018.

The investment in various media companies of the past and group corporate exposure (~Rs 10,000 crore) remain an overhang as debt remains elevated on these exposures. Post the sharp correction in ADAG group stocks including Reliance Capital, the debt settlement plan of Reliance Communications had come as a relief though delays in implementation continue to hamper recovery again. The stock is trading at 0.6x FY20E BV and 6.1x FY20 P/E.