Reliance Capital, the financial services arm of Reliance Anil Dhirubhai Ambani group, reported a 20 percent year-on-year drop in its fourth quarter consolidated net profit to Rs 156 crore, driven by lower income from operations that fell 15 percent to Rs 1,650 crore.
However, a reversal of Rs 85 crore tax provisions arrested a sharper fall of net profit. Without this component, net profit would have tanked 75 percent y-o-y to Rs 71 crore. (More on numbers)
Speaking to CNBC-TV18, Sam Ghosh, CEO of Reliance Capital says he expects the general insurance business to turn profitable in FY14. He also expects new business premium to start growing and NIM to go above 4.5 percent in the short-term.
Below is the verbatim transcript of his interview to CNBC-TV18.
Q: Give us a word on what happened with the finance in investment vertical where there is the greatest disappointment in terms of revenues this time?
A: If you look at fourth quarter FY12, we did the stake sale of our Reliance Life Insurance. Around 26 percent stake to Nippon Life in that quarter. Therefore, in that quarter in Q4FY12 we had a substantial gain in the financial investments.
Whereas in this financial year, in Q4FY13, we have put aside Rs 100 crore towards provision for diminishing value for some of our investments. So, there is a big string between those two figures. However, if one leaves that aside and looks at it from a business perspective, all the business performances have been ahead of last financial year.
I will just run through the business performances. If you look at our asset management business, our AUMs have grown nearly Rs 95,000 crore, 21percent growth rate. So, that has shown substantial growth. In terms of profitability, the profits in Q4 have grown by 15 percent. If you look at our Life Insurance business, profits have been flat and new business premiums have come down. However, our new business margins have grown to 20 percent. So, the profits in the future will be much higher than current year’s profits.
Our commercial finance business has again done very well, 35 percent growth to Rs 340 crore in terms of profitability. AUMs have grown about 9-10 percent to over Rs 1,700 crore. If one looks at our general insurance business, which was a laggard in the past, last two quarters have shown profits. Q4 has shown profit of over Rs 17 crore. If one looks at last year, we showed a loss in this business of about Rs 250 crore. So, there is huge strength, from a loss to a profit of Rs 17 crore.
There has been a significant change in our business and the improvement in the general insurance business will continue quarter-on-quarter (Q-o-Q). Our broking and distribution business has also shown more or less flat profitability because the markets have been fairly tough. On the distribution side we have added substantial number of people to grow our distribution business. So our money transfer business, gold, retail as well as our life insurance sales will show better improvement in next financial year.
Q: What about your general insurance business, it has done quite well in the current quarter, what do you expect to see for the rest of the year there?
A: Yes the general insurance business for the next financial year we are expecting to show a profit for the whole financial year. So Q-o-Q one will see profits and the combined ratio, which is currently at about 121 percent.
We are expecting it coming down to about 100 percent combined ratio for the next financial year. So, we expect substantial improvement there as well as in terms of the gross written premium. Last year we showed a growth of 16 percent to over Rs 2000 crore. This year we expect it to at least grow by over 20 percent growth rate.
Q: What about life insurance?
A: On the life insurance business in the last financial year the industry itself has gone through tough times. New business premium as well as renewal premium has been shrinking. This year for the first time in the month of April new business premium started growing. We expect growth in new business premium for the year as well as renewal premium should stabalise and start growing slowly.
I think the good thing about our business has been that our new business margins have grown over 21 percent. This is the first time it has gone to such a high level, which shows that the quality of business we are at is much better than in the past. Profit from this business will start coming through in the next few quarters, next financial year FY14 as well as FY15. Therefore profits also should increase from the current profit level of Rs 380 crore. We expect the profits to grow upwards.
Q: Besides your business that has done quite well is the commercial finance and what was the experience there and what kind of growth you expect to see from that side?
A: If you look at the life business, they showed a profit of Rs 380 crore. Our commercial finance showed a profit of Rs 340 crore. So in terms of profitability I think life is bigger for the financial year.
However, our commercial finance business has improved significantly, nearly 35 percent growth. The net interest margins (NIMs) are at 4.3 percent. The big thing had been that in Q4 the NIM levels had gone up to 4.9 percent.
So, that shows that the future NIM will go up about 4.9 percent. We want it to go up above 5 percent because that will show that future profitability is good and return on equities (RoEs) can get to about 16-18 percent which is the target RoE for that company.
Q: You are being seen as one of the front runners for getting a banking license, where has that reached? Have you guys looked to apply for one yet, are you waiting for clarifications?
A: Yes, we have certainly asked Reserve Bank of India (RBI) for clarification in a number of areas. We are waiting for the answers to those clarifications. We are expecting that it should come out soon. Once we get the answers to those clarifications, we will certainly put in our application by the date suggested by RBI, being July 1. So before that we will certainly have to put in our application.