10 July 2014
Reliance Capital
spotlight
The Idea Junction
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
RCAPT IN
606.0
246
160.9/2.7
668/290
-5/55/29
Core businesses gain traction
Monetization of non-core investments to improve profitability
Restructuring and cost rationalization implemented across businesses leading to sharp
improvement in core profitability.
Both life and non-life insurance businesses turned profitable and continue to witness
steady improvement across key parameters. Proposal to hike FDI limit in life insurance
to 49% from 26% to help unlock value.
Better macros and improving liquidity augur well for lending business. Expected
improvement in margins and steady asset quality to lead to RoE improvement.
Revival in equity market bodes well for capital market related business and monetization
of non-strategic investments.
Financials & Valuation (INR b)
Y/E March
NII
PBT
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoAA (%)
RoE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
Div. Yield (%)
-
-
-
-
-
-
20.0
2.2
1.3
2012
5.7
5.2
4.6
18.6
57.0
1.4
4.8
50.0
2013
8.6
8.3
8.1
33.0
77.3
2.1
7.0
34.4
2014
11.8
8.5
7.5
30.3
-8.1
503.7
1.7
6.2
27.0
443.5 461.2
Life insurance (RLIFE) focus on profitable growth:
Shift in product mix, focus
on improving agents' productivity and cutting the flab, emphasis on high ticket
business, with a focus on Tier I locations not only led to rapid increase in
market share gains (6.6% in FY14 v/s 4.5% in FY13), but also better profitability
(NBAP margins rose to 23.8%, compared to 15.6% in FY12). With regulatory
headwinds behind, the insurance industry and Reliance Life Insurance (RLIFE)
will move to a higher growth trajectory over the next three years.
Lending business (RCF) steady growth and improving RoE:
Reliance
Commercial Finance (RCF) has created a niche presence across high yielding
LAP and SME segments. Over FY10-14, RCF focused on self-employed
customers, asset-based lending and financing for productive asset creation,
which augurs well from asset quality perspective. Improving growth outlook
will reduce risk aversion and growth rates to be 20%+ CAGR over FY14-17E.
NIM to stay 5%+ due to focus on high yielding assets, higher proportion of
fixed rate loans and expectation of systemic decline in funding cost.
Revival in equity market bodes well for capital market related business:
Reliance Capital AMC (RCAM) is a dominant player in MF industry, with +12%
market share and is highly profitable. Despite a stagnant AUM over last three
years, RCAM managed to report PBT CAGR of +10%. With improving macro-
economic outlook and better capital market flow, we expect AUM CAGR of
18% over next three years. Better capital market also augurs well for non-
strategic investments.
Spotlight
is a new offering from the Research team at Motilal Oswal. While our Coverage Universe
is a wide representation of investment opportunities in India, there are many emerging names in the
Mid Cap Universe that are not under coverage. Spotlight is an attempt to feature such mid cap stocks
by visiting such companies. We are not including these stocks under our active coverage at this point
in time. Motilal Oswal Research may or may not follow up on stocks under Spotlight.
Shareholding pattern (%)
As on
Mar-14 Dec-13 Mar-13
Promoter
54.1
54.1
54.1
Dom. Inst
5.3
5.3
5.6
Foreign
21.1
21.6
20.4
Others
19.5
19.0
19.9
Stock performance (1 year)
Sunesh Khanna
(Sunesh.Khanna@motilaloswal.com); +91 22 3982 5521
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through disclosures made at the end of the Research Report.
RED: Caution
AMBER: In transition
GREEN: Interesting
1

spotlight
| Monsanto India
General insurance on the cusp of a rebound:
Reliance General Insurance (RGIL)
business was one of the biggest drags on its profitability, with accumulated losses
of INR9b since inception (losses of INR3.2b in FY12 and INR0.6b in FY13). However,
in FY14 the business turned profitable and made PAT of INR641m. With regulatory
issues behind (all the losses have been absorbed) and internal realignment of
portfolio over, RGIL is focusing on writing profitable business.
Financials snapshot
FY11
Reliance Life Insurance (INR m)
First year premium
22,846
Single premium
7,503
Total New business premium
30,349
Renewal Premium
35,362
Total premium (net of reinsurance)
65,479
Profit / (loss) before tax
(1,293)
Total funds under management
178,553
NBAP Margins (Reported)
16.7
Persistancy (13 months)
56
Reliance General Insurance (INR m)
Gross Written Premium
16,554
Profit / (loss) before tax
(3,098)
Investment book
21,372
Combined ratio (%)
140
No. of policies issued (in m)
2.8
Reliance Commercial Finance (INR m)
AUM
1,37,800
Net Interest Income
5,122
Operating Profit
5,173
Profit before tax
2,693
GNPA (%)
1.1
RoA (% Calc)
1.6
RoE (% Calc)
11.9
Reliance Capital Asset Management (INR m)
IIncome
7,330
Expenses
4,387
Profit before tax
2,943
Reliance Capital Asset Management- Fund Mix (INR b)
Debt
677
Equity
334
Gold
4
Managed Accounts
19
Pension Funds
445
Offshore Funds
12
Total AAUM
1,492
Broking (INR m)
Total Income
2,523
Total Expenses
2,316
Profit / (loss) before tax
208
Reliance Money (Distribution-INR m)
Total Income
585
Total Expenses
461
Profit before tax
124
10 July 2014
FY12
14,364
3,729
18,093
36,883
54,702
3,726
187,666
15.6
56
17,125
(3,416)
27,021
145
2.6
1,50,800
5,104
5,173
2,537
1.5
1.3
9.4
6,647
3,571
3,076
474
281
27
15
595
18
1,409
3,601
3,281
320
1,060
826
234
FY13
11,884
1,882
13,766
26,688
40,153
3,804
181,894
20.2
53
20,362
(928)
32,525
121
2.9
1,63,800
5,901
5,173
3,420
1.7
1.7
12.1
7,346
4,450
2,896
645
272
29
15
708
63
1,731
2,581
2,206
375
1,200
1,127
73
FY14
18,363
977
19,340
23,494
42,567
3,589
183,278
23.8
55
24,417
641
38,427
119
3.7
1,73,500
7,069
5,173
4,295
2.0
1.9
14.9
7,746
4,225
3,521
767
246
22
15
836
50
1,936
2,052
2,287
(235)
1,447
1,419
28
2

Spotlight
|Reliance Capital
RLIFE: focus on profitable growth
Significant gain in market share, Economic tailwinds to support growth
Shift in product mix, shedding of inactive agents, incremental focus on Tier I locations
not only led to rapid increase in market share gains (6.6% in FY14 v/s 4.5% in FY13),
but also better profitability (NBAP margin rose to 23.8%, compared to 15.6% in FY12).
With regulatory headwinds behind, we believe that the insurance industry and RLIFE
will move to a higher growth trajectory over the next three years. We expect RLIFE to
report WNRP CAGR of 15% over FY14-17E. NBAP is expected to decline 15% but will
remain better/in-line with peers.
Budget proposal to hike FDI limit in life insurance to 49% from 26% to help unlock
value. Nippon Life’s 26% stake purchase in RLIFE valued it at ~INR115b.
Redesigned business model to drive profitable growth
Post new ULIP guidelines in September 2010, new business premium for most of
private players shrunk as the need was to move towards traditional products.
RLIFE was impacted more than other private players as it had a higher share of
ULIP sales. Over FY10-13, APE for RLIFE declined at a CAGR of 36%, compared to
14% decline for the industry.
Company utilized this phase to restructure its business model by improving its
product mix and distribution network.
Traditional products formed 83% of incremental sales, compared to 8.7% in
FY10. Further, agency force was trimmed to 100,000 as in March 2014,
compared to a peak of 196,000. Improving productivity and financial
performance was the key mantra during consolidation phase.
RLIFE also initiated steps such as eliminating risk of wrong-selling by agents by
connecting with customer at the initiation of a transaction. While this led to
some loss in business, it would improve persistency ratio in the medium term.
We expect WNRP CAGR of 15% over FY14-17E. In our view, NBAP of 23.8%
reported in FY14 was high due to higher mix of traditional products under the
old regime. Hence, we have factored NBAP margin to decline to 15% over the
next three years, though will remain better/in-line with peers.
Business mix shifts in favor of traditional products (%)
Traditional
30.7
ULIP
22.2
16.9
Post continuous decline new business premium rises
New Business Premium (INR b)
39.2
30.3
18.1
13.8
19.3
52.2
91.3
47.8
8.7
69.3
77.8
83.1
Source: Company, MOSL
Source: Company, MOSL
10 July 2014
3

Spotlight
|Reliance Capital
Rationalization of branches and…
…agents to improve productivity
196
Policy Agents (in 000's)
189
151
124
100
Branches
1,247
1,248
1,230
1,230
900
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
Individual policy sold on a declining trend……
….though average ticket size increases
No. of individual policies sold (in Rs000)
2,326
1,903
14,600
Average Ticket size (INR)
20,100
14,000
1,094
763
587
12,850
14,650
Source: Company, MOSL
Source: Company, MOSL
Market share gains in FY14 – expect further improvement
Persistency ratio started improving
Private Sector Market Share (%)
10.2
7.7
5.5
4.5
6.6
Persistency (%)
56
54
53
56
55
Source: Company, MOSL
Source: Company, MOSL
10 July 2014
4

Spotlight
|Reliance Capital
NBAP margin improved – expect moderation though
Life business turns profitable – self-sustaining
PBT (INR b)
NBAP Margin (%)
23.8
19.1
16.7
15.6
20.8
5
0
FY09
-5
-10
-10.84
-15
FY10
-2.83
3.7
3.8
3.6
FY11
-1.3
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
Structural story intact; catalysts - disinvestment and bancassurance model
We believe the insurance industry is still at a nascent stage and structural
factors (rising disposable income, Indian demographics and increasing financial
savings) should drive growth in medium to long term.
Increase in foreign direct investment limit, which could drive higher inflows in
this segment.
Relaxation of bancassurance norms as proposed by IRDA could bring new
avenue for RLIFE to distribute products and rapidly increase market share.
Earlier transactions imply significant value to RLIFE
Reliance Capital sold 26% stake in RLIFE to Nippon Life for INR30.6b, implying
RLIFE’s total valuation at ~INR115b. However, we arrive at a valuation of INR79b
FY16E based on appraisal value methodology. Valuations are lower than those
implied by the above transaction, as there would be an element of premium for
acquisition of strategic stake.
If we were to value RLIFE based on the above deal, then its per share value
comes at INR346.
Reliance Life Valuation Matrix
Embedded Value (A=1+2)
% of Appraisal Value
Net worth (1)
Value in Force (2)
Structural Value (B)
% of Appraisal Value
Apprasial Value (C=A+B)
FY13
27,326
47.9
12,326
15,000
29,694
52.1
57,020
FY14
30,651
43.4
15,386
15,266
39,984
56.6
70,635
FY15E
FY16E
FY17E
34,153
39,166
46,266
48.1
49.4
51.5
18,293
20,909
24,048
15,860
18,257
22,217
36,861
40,142
43,569
51.9
50.6
48.5
71,014
79,308
89,835
Source: Company, MOSL
10 July 2014
5

Spotlight
|Reliance Capital
NBFC: Better macro to unleash growth potential
Niche position aids pricing power
Niche presence across high yielding segments, focus on self-employed customers with
asset-backed lending and productive asset creation augur well in the context of
improving economic environment.
Expect AUM CAGR of 20%+ over FY14-17E, compared to CAGR of 8% over FY11-14.
NIM to stay at 5%+ due to focus on high yielding assets, higher proportion of fixed rate
loans and expectation of systemic decline in funding cost.
90dpd GNPA at 2% - one of the lowest in industry; FY15E RoE to improve to +16%.
Diversified & secured loan book; self-employed a key target segment
Reliance Commercial Finance (RCF) focuses on asset-backed lending for productive
asset creation and has a loan portfolio of INR137b and AUM of INR174b. Company
targets self-employed segment and diversification is brought about by strong
presence in segments like (1) loan against property (33% of AUM), (2) home loans
(16% of AUM), (3) commercial vehicles (13% of AUM) and (4) SME (27% of AUM).
Apart from loans in the commercial finance book, company also has INR72b of short
term loans (managed by Reliance Capital at parent level).
Improving macros augur well; growth momentum to resume
Given the rising challenges in Indian economy, RCF adopted a calibrated approach
across segments and overall loan book remained largely flat since FY12. This was
driven by run-down of unsecured portfolio and focus on quality rather than growth
by maintaining high margin of 5%+ and strong asset quality (GNPA of less than 2%).
With revival in economic growth, strong presence over 37 locations and growing
customer base, we believe the company is well poised to capture the growing needs
of financing in the Indian economy. Niche expertise and lower base should help it
report strong growth momentum of 20%+ CAGR for next three years.
Disbursements CAGE at 10% from FY12-14
Loan growth flat while AUM grew at 6% in FY14
AUM (INR b)
98
137.8
122.9
150.8
132.4
Total Loans (INR b)
163.8
136.5
173.5
136.7
Disbursements (INR b)
87.8
79.4
87.4
Source: Company, MOSL
Source: Company, MOSL
10 July 2014
6

Spotlight
|Reliance Capital
Niche presence imparts pricing power, translating to superior yields & NIMs
Niche presence in self-employed segment and high yielding products has endowed
RCF with pricing power which ensures healthy yields of 15%+. While cost of funds is
impacted by the systemic interest rates, company been able to improve its margins
to 5.5% (4.1% in FY12) led by rising yield on loans even as mix of loans remained
largely stable; this corroborates the view of RCF’s ability to pass on the cost push to
its borrowers.
Going forward, we expect NIM to remain stable/improve at 5%+ led by (1)
continued focus on high yielding assets, (2) decline in wholesale rates and lower
leverage at the consolidated level could also help bring down cost of funds and (3)
higher proportion of fixed rate loans in the balance sheet. We expect NII CAGR of
21% over FY14-17E, compared to 11% over FY11-14. Containment of opex will drive
PAT CAGR of +24%.
Barring home loans, all assets command +15% yield
Segmental Yields (%)
16
13
15
15
Home Loan
LAP
CVs
SME
Source: Company, MOSL
Strong pricing power reflected in healthy yields, margins
Yield (%)
12.5
13.7
NIM (%)
14.4
15.3
Despite focus on SE segment, cost ratios contained
18.3
Cost to Income (%)
16.2
14.7
16.4
5.3
4.1
4.3
5.5
Source: Company, MOSL
Source: Company, MOSL
Loan/ AUM to post 20%+ CAGR for next 3 years
Loan book has been flat since FY12 due to a) run-down of unsecured portfolio and
buildup of secured assets, b) sluggish economic activities - the focus was on
maintaining high margins and focus on asset quality. However, with recovery in
sight and expected pick-up in activities, we expect loan/ AUM to post 20%+ CAGR
for next three years.
10 July 2014
7

Spotlight
|Reliance Capital
Expect 20%+ loan growth for next 3 years
AUM (INRb)
AUM Growth (%)
25.0
20.0
9.4
150.8
FY12
8.6
163.8
FY13
22.0
5.9
173.5
FY14
208
FY15E
260
FY16E
318
FY17E
Source: Company, MOSL
Healthy asset quality; 90dpd GNPA at 2% - among the best in industry
Strong underwriting standards and processes like screening all loans through CIBIL,
100% asset-backed lending and no loan for consumption purpose have been
enablers of healthy asset quality. While GNPA percentage increased from 1.1% to
2% (90-day basis) at end-FY14, it should also be viewed in the context of flat loan
book (denominator effect). Further, company has shored up its provisioning
coverage to 70%, providing strength to its balance sheet. The asset quality matrix is
relatively better than peers (most NBFCs report 180dpd GNPAs) and we expect this
trend to continue over the medium term.
Despite muted AUM growth, PBT has been inching upwards
Total Income (INR b)
19.5
13.7
PBT (INR b)
21.2
22.1
1.5
1.1
1.7
90dpd NPLs at 2% is among the best in industry
2.0
2.7
2.5
3.4
4.3
Source: Company, MOSL
Source: Company, MOSL
Valuation
With resumption of balance sheet growth, strong margin profile and asset quality,
we expect return ratios to improve. RoA is expected to be 2.4% over FY14-17E and
RoE to improve to +18%, compared to average RoE of 12% over FY12-14. Given the
return profile, the commercial finance business could be valued at 1.5x FY16E P/B,
similar to peers with comparable return profile.
10 July 2014
8

Spotlight
|Reliance Capital
AMC: Improving capital market to drive growth
Dominant position with 12% market share
One of the largest asset manager in India with combined asset under management of
INR1.9t.
Mutual fund business is the third largest and reported AUM of INR1t.
Focus remains on profitability. Despite challenging environment, flat MF AUM over
FY12-14 and changing mix in favor of low yielding products (declining share of equity
AUM), reported PBT CAGR was +25%.
With improving macro-economic outlook and better capital market flow, we expect
AUM CAGR of 18% for MF business and PBT CAGR of +21% over FY14-17E.
Reliance Capital Asset Management (RCAM) managed INR1.9t of assets as of March
2014, which spreads across mutual funds (INR1t), pension funds (+INR750b) and
managed accounts (INR20b). Reliance MF is amongst the top three MFs in India
(AUM wise), with a market share of ~12%. Retail debt forms 33% of overall AUM,
which helps it with superior profitability. It also has a wide distribution network at
175 locations and has over 42,000 empanelled distributors.
Largest asset manager with AUM of INR1.9t (incl pension)
Avg AUM (INR b)
1,731
1,409
1,936
Equity forms 24% of AUM
Debt
1,016
334
781
272
281
681
501
674
790
Equity
946
1,035
246
1,492
Source: Company, MOSL
Source: Company, MOSL
Focus on improving realization
Mutual fund industry has been under strain which is reflected in stagnant AUM of
Reliance MF too. Further, the mix has shifted from debt-equity of 72:28 to 80:20.
Retail debt AUM share declined from 40% in FY13 to 33% in FY14. However, focus
on better cost realization led to PBT CAGR of +25% over FY12-14 (PBT growth of 21%
YoY in FY14).
10 July 2014
9

Spotlight
|Reliance Capital
MF industry AUM remained flat
MF Industry AUM (INRt)
8.3
5.9
7.0
5.9
MF industry: high yielding equity funds were on a decline
Equity (%)
Others (%)
71.3
73.0
78.6
79.9
28.7
27.0
21.4
20.1
Source: Company, MOSL
Source: Company, MOSL
Improving equity outlook bodes well for AMC business
Improving sentiments towards equity and better participation from retail investors
brighten asset management business’ medium term prospects. We expect AUM to
grow by 25%/15% in FY15E/16E driven by an improvement in investor sentiment
towards equity markets.
Despite flat markets, income grew 10% in FY14…
…and PBT grew 21% in FY14
7.7
Total Income (INR b)
7.3
6.6
7.3
PBT (INR b)
3.5
2.9
3.1
2.9
Source: Company, MOSL
Source: Company, MOSL
RCAM has been focusing on promoting systematic investment plans (SIPs) and
caters to a wide customer base of over 6.5m. The dominant position and gradually
improving outlook for equity asset class augur well for the asset management
industry in general and RCAM in specific. The bright outlook for India’s asset
management market is well brought out by the uptick in valuations of M&A deals in
the industry.
10 July 2014
10

Spotlight
|Reliance Capital
General insurance - on the cusp of rebound
Industry at a nascent stage – incumbents to benefit from growth prospects
Reliance General Insurance (RGI) is among the top
five
private sector insurers, with a
market share of 7.5%. Company reported first year of profit (INR641m) in FY14, even
though it absorbed IMTP losses (one-offs) of INR750m.
With redesigning of the business model and regulatory headwinds behind, we believe
that the general insurance industry and RGI will move to a higher growth trajectory
over the next three years.
We expect RGI to report GWP of +20% over FY14-17E. Fall in combined ratio (119% in
FY14) will aid to improve profitability.
RGIF well capitalized with a capital base of INR17b.
General insurance: among the top 5 players
RGI is a 100% owned company and is among the top 5 private sector insurance
companies. It offers insurance solutions for auto, health, home, property, travel,
marine, commercial and other specialty products. The distribution network
comprises of 127 branches and over 15,000 intermediaries as in March 2014.
RGI has lost market share due to change in product mix
ICICI Lombard
HDFC ERGO
9
6
7
9
15
22
7
7
8
8
14
22
Bajaj Allianz
TATA AIG
7
7
8
9
13
21
IFFCO Tokio
Reliance General
7
7
8
8
13
20
Private sector market share movement
Private (%)
Public (%)
61
60
59
56
57
39
40
41
44
43
Source: Company, MOSL
Source: Company, MOSL
Reported first year of profits in FY14 despite one-offs
General insurance industry has been going through tough times as changes in the
regulations and heightened competition impacted profitability of all players in the
industry. The business has been one of the biggest drags on RCAP’s profitability,
with accumulated losses of INR9b since inception (losses of INR3.2b in FY12 and
INR0.6b in FY13). However, in FY14 the business turned profitable with the company
reporting PAT of INR641m (this was post absorption of INR750m of provisions due
to third party motor claims and exceptional provisions for motor decline pool).
Hence, adjusted for one-offs, FY14 PAT would have been INR1.4b.
Regulatory issues and restructuring behind, focus on profitable growth
Now with the regulatory issues behind (all losses on account of regulatory changes
been absorbed) and internal realignment of portfolio over, RGI is focusing on writing
profitable business and improving profitability. In FY14, GWP grew 20% YoY,
indicating resumption of growth. Further, company has optimized its product
portfolio mix and is increasing its commercial lines of business. RGI has reduced
10 July 2014
11

Spotlight
|Reliance Capital
dependence on motor insurance and diversified into health insurance (21% of mix
v/s 3% in FY12). This led to lower claim ratio and improved profitability. The
combined ratio (including third party motor pool) has shown a gradual improvement
from 145% in FY12 to 121% in FY13 and 119% in FY14. We expect 20% CAGR over
FY15E-17E for GWP and combined ratio to further improve.
GWP to post CAGR of 20% for next 3 years
Digital platform, new channels aid sell higher policies
Gross Written Premium (INR b)
24.4
16.8
17.5
20.4
2.8
No. of policies issued (in m)
2.6
2.9
3.7
Source: Company, MOSL
Source: Company, MOSL
Improvement in combined ratio...
…to aid profitability
Combined Ratio (%)
140
145
121
119
-3,089
PBT (INR m)
641
-928
-3,416
Source: Company, MOSL
Source: Company, MOSL
Business mix: diversified mix enables better spreads
Marine, 2
Fire & Engg,
10
Health, 21
97% of investments are in debt funds
Investment Book (INR b)
32.5
38.4
Others, 7
21.4
27
Motors , 60
Source: Company, MOSL
Source: Company, MOSL
10 July 2014
12

Spotlight
|Reliance Capital
Improving capital markets to boost profitability
Broking and distribution businesses highly levered to capital market
Second-largest retail broking; presence in wholesale segment through Quant Broking.
Revival in equity market and increase in volumes bodes for broking businesses to
boost profitability.
Reliance equity advisors (the private equity arm) to start investments exits from
2HFY15; the portfolio is valued at 1.41x the cost.
Reliance Securities is second largest broker in retail segment
Broking business consists of Reliance Securities which caters to retail segment and
Quant Capital catering to wholesale segment. Reliance Securities is the second
largest broker in retail segment and has over 0.8m client base. It provides customers
with access to equities, equity options and commodities futures, wealth
management, portfolio management services, mutual funds, IPOs and investment
banking. Quant Capital caters to the wholesale client segment of capital markets,
including foreign and domestic institutions, corporations and ultra high net worth
individuals.
Revival in equity markets to boost profitability
The broking business made losses in FY14 as a) retail volumes remained muted, b) in
FY14, company invested significantly in technology, whereby expenses rose, which
led to a strain in profitability and c) company discontinued the sale of gold coins
which also impacted revenue. However, upsurge in equity markets and increase in
volumes over the last few months bodes well. While the company has a large pool
of clients, revenue has been on a decline since FY12 due to muted retail
participation. However, a revival in equity market is likely to ensure healthy
participation from retail segment.
Reliance Money: Distribution business
Reliance Money is Reliance Capital’s arm for third party distribution. It acts as a
distributor for mutual funds, life and general insurance products, money transfer,
precious metal retailing and premium products. It has also tied up with Western
Union Money Transfer and facilitated 2.5m money transfer transactions in FY13.
Reliance Asset Reconstruction Company
Reliance ARC is in the business of acquisition, management and resolution of
distressed debt/assets. The business focuses on bilateral deals with banks and works
with the management of NPA Company for facilitating time bound solutions. As in
FY14, assets under management stood at INR6.8b. Reliance ARC made a profit of
INR68m in FY14. RCAP has invested INR0.49b in the company & has 49% stake in the
business.
Reliance Equity Advisors
Reliance Equity Advisors manages a private equity fund that makes late stage
investments in mid-sized Indian companies. The fund is fully invested in eight
companies and its existing investments are closely monitored on an ongoing basis;
10 July 2014
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Spotlight
|Reliance Capital
portfolio remains on track and investments continue to perform to expectation. The
portfolio has been valued at 1.41 times cost as in FY13 and the fund will start
focusing on exits from 2HFY15 onwards. RCAP has deployed INR2b in the company.
Securities made loss due to one off costs
Total Income (INRm)
PBT (INRm)
663
No. of accounts in equity and commodity
Equity ('000)
687
Commodity ('000)
730
715
2,523
208
2,749
320
2,581
375
2,052
34
-235
36
40
48
Source: Company, MOSL
Source: Company, MOSL
Average daily turnover has been flat for last 3 years
Stock Exchanges (INRb)
24.3
14.1
10.1
3.1
10.0
5.0
Commodities (INRb)
24.9
21.2
Reliance Money has been registering healthy income growth
Total Income (INRm)
PBT (INRm)
1,447
1,060
585
124
234
73
28
1,200
Source: Company, MOSL
Source: Company, MOSL
Money transfer transactions (in ‘000)
2,259
2,453
2,814
Wealth management AUM witnesses sharp increase (INR b)
20.5
2,006
10.1
5.8
2.3
Source: Company, MOSL
Source: Company, MOSL
10 July 2014
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Spotlight
|Reliance Capital
Sale of non-core investments to deleverage Balance sheet
Proceeds from investment sale to be re-deployed in core businesses
Reliance Capital has undertaken an exercise to sell all non core investments, which
includes equity market investments and investments in group companies.
Selling of these investments will make the corporate structure leaner and free capital
for core businesses.
The process of divestment has already started with merger of Reliance media work’s-
Global films and media division with prime focus
RCAP has total investment of INR133b, of which INR88b (~66% of investments) are
in subsidiaries and associates. Remaining INR45b is invested in listed as well unlisted
firms in the form of equity, debentures and preference shares. Over the next 12-24
months, RCAP will exit most of these non-core investments (both group and non
group) of INR48b. The exit will make the corporate structure leaner and will free up
capital to fund future growth requirements of core businesses of lending and
insurance.
Break-up of investments in subsidiaries and associates (FY13)
Investment in Subsidiaries
Reliance Capital Asset Management Ltd
Reliance Echangenext ltd
Reliance General Insurance Co. Ltd
Reliance Home Finance Ltd
Reliance Money Express Ltd
Reliance Securities Ltd
Quant Capital Pvt Ltd.
Others
Total Subsidiaries
Investment in Associates
Reliance Life Insurance Co Ltd. (Including Viscount mgmt. services)
Reliance Asset Reconstruction Co Ltd
Reliance land Private
Others
Total Associates
Total Subsidiaries and Associates
INR b
1.84
0.69
17.17
3.21
0.25
0.25
2.00
0.01
25.98
61.39
0.49
0.05
0.05
62
87.8
Source: Company, MOSL
The process of divestment has already started with merger of Reliance media
work’s- Global films and media division with prime focus. Similar unlocking of value
in other investments can act as a key catalyst for the stock as this will free up
management’s bandwidth and resources enabling focus on core financial services
businesses.
10 July 2014
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Spotlight
|Reliance Capital
SOTP valuation
Life insurance, AMC and lending are key value drivers
Reliance Capital SOTP-FY16
Business
Life Insurance
Asset Management
Consumer Finance
General Insurance
Broking & Distribution
Total Value
Total value % Stake
79,308
74
66,733
65
45,936
100
20,868
94
10,436
75
223,281
Value attributable
58,688
43,376
45,936
20,868
10,436
179,304
Per Share Value % of total SOTP
Valuation Methodology
239
28
Appraisal Value
176
21
4.8% of Average domestic AUM
187
22
1.5x FY16 P/B
85
10
1X FY16 P/B
42
5
15x FY16 P/E
729
Source: Company, MOSL
Per Share Value
270
207
225
92
57
852
% of total SOTP
32
24
26
11
7
Valuation Methodology
Appraisal Value
4.8% of Average AUM
1.5x FY17 P/B
1X FY17 P/B
15x FY17 P/E
Source: Company, MOSL
Reliance Capital SOTP-FY17
Business
Life Insurance
Asset Management
Consumer Finance
General Insurance
Broking & Distribution
Total Value
Total value
89,835
78,513
55,374
22,563
14,047
260,332
% Stake
74
65
100
94
75
Value attributable to
66,478
51,034
55,374
22,563
14,047
209,495
Key risks
Delay in monetization of investments
Selling of non core assets will deleverage the balance sheet and free up capital for
core business. However, delay beyond 12-15 months can impact funding
requirements of core businesses.
Funding of subsidiaries’ capital requirements
Higher-than-expected capital infusion requirement in subsidiaries is a risk. If higher
retained earnings, driven by profitability of other businesses are not adequate, then
there could be a risk of lower dividends and/or dilution.
Regulatory changes
The core businesses of lending, life insurance, asset management, general
insurance, broking are tightly regulated. In the past three years, businesses suffered
due to introduction of new/stiff regulation. Incremental regulatory changes that
require significant changes in business structure can adversely affect growth.
10 July 2014
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Spotlight
|Reliance Capital
Financials and valuations
Income statement
Y/E March
Interest Income
Interest expense
Net Interest Income
Growth YoY
Other Operating Income
Growth YoY
Invt mgt, Advisory and PMS Fees
Growth YoY
Commission and Brokerage Earned
Growth YoY
Premium & Commission Earned
Growth YoY
Processing fees
Growth YoY
Total Operating Income
Total Operating expenses
Growth YoY
Cost to income Ratio
Employees Cost
Growth YoY
Claims Incurred (net)
Growth YoY
Depreciation
Growth YoY
Loss on sale of securities
Others
Growth YoY
PBT
Growth YoY
Provision for Taxation
Tax Rate (%)
Reported PAT
2009
2010
2011
2012
2013
18,304 19,158 22,320 28,220 32,070
12,638 13,502 14,640 22,500 23,430
5,665 5,656 7,680 5,720 8,640
12.2
-0.2
35.8
-25.5
51.0
41,466
3.8
4,991
9.5
1,622
15.8
20,719
-1.4
339
-39.3
59,769
33,378
4.4
70.2
5,541
35.5
10,729
42.9
567
37.6
0
7,842
-28.3
12,042
-1.0
1,810
15.0
10,158
41,948
1.2
6,724
34.7
2,412
48.7
21,546
4.0
413
21.9
61,106
38,878
16.5
81.2
5,354
-3.4
11,857
10.5
676
19.3
3,132
7,237
-7.7
5,883
-51.1
1,480
25.2
4,343
32,010
-23.7
6,930
3.1
2,340
-3.0
18,170
-15.7
500
21.1
54,330
35,540
-8.6
87.3
4,970
-7.2
13,310
12.3
500
-26.1
200
7,670
6.0
2,900
-50.7
570
19.7
2,910
37,550
17.3
5,900
-14.9
2,090
-10.7
19,340
6.4
510
2.0
65,770
36,040
1.4
82.3
5,480
10.3
12,660
-4.9
540
8.0
50
6,910
-9.9
5,190
79.0
1,900
36.6
4,580
42,630
13.5
6,420
8.8
2,210
5.7
20,730
7.2
810
58.8
74,700
36,990
2.6
71.5
6,070
10.8
12,610
-0.4
560
3.7
60
7,870
13.9
8,300
59.9
1,270
15.3
8,120
2014
36,814
25,011
11,803
36.6
37,736
-11.5
6,991
8.9
2,664
20.5
24,372
17.6
891
10.0
74,550
39,460
6.7
79.7
5,990
-1.3
16,040
27.2
640
14.3
11,000
39.8
8,470
2.0
1,005
11.9
7,465
10 July 2014
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Spotlight
|Reliance Capital
Financials and valuations
Balance sheet
Y/E March
Cash and Bank Balances
% age of borrowings
Loans
Growth YoY
Total Investments
Growth YoY
Fixed Assets
Growth YoY
Other Assets
Total Assets
Equity Share Capital
Reserves & Surplus
Networth
Borrowings (as reported)
Other liabilities
Total Liabilities
Growth YoY
(INR Million)
2009
2010
2011
2012
2013
11,675
8,628 16,340 11,250 15,820
8.3
5.9
8.0
5.7
7.0
119,756 124,756 151,760 164,740 199,320
16.5
4.2
21.6
8.6
21.0
98,742 113,406 123,010 147,600 150,870
63.0
14.9
8.5
20.0
2.2
2,888
2,585
2,140
2,810
4,390
43.0
-10.5
-17.2
31.3
56.2
8,880 11,379 26,920 26,600 35,140
241,896 261,152 320,870 353,450 405,880
2,462
2,462
2,462
2,460
2,460
72,072 74,578 75,440 115,220 117,250
74,534 77,040 77,902 117,680 119,710
141,071 145,193 203,740 195,900 225,100
25,459 37,982 37,600 38,560 55,910
241,896 261,152 320,870 353,450 405,880
31.3
8.0
22.9
10.2
14.8
2014
15,822
6.2
224,618
12.7
161,577
7.1
4,831
10.0
48,429
455,277
2,445
126,904
129,349
255,766
70,162
455,277
12.2
10 July 2014
18

Spotlight
|Reliance Capital
NOTES
10 July 2014
19

Disclosures
Spotlight
|Reliance Capital
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