Nippon deal: A booster for Reliance Cap, says ICICI Direct

58221 Investors following Rel Capital. Share this News with them.

0

Like this story, share it with millions of investors on M3

Nippon deal: A booster for Reliance Cap, says ICICI Direct

Reliance AMC and Nippon have entered into a deal. Kajal Gandhi of ICICI Direct says, the deal is positive for Reliance Capital. “This is definitely a booster for the company."

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Rel Capital BSE | NSE 29/05/12 Are Mutual Funds betting on Rel Capital?

Reliance AMC and Nippon have entered into a deal where Nippon Life will be investing about Rs 1,335 crore in the AMC business of Reliance Capital .

In an interview to CNBC-TV18, Kajal Gandhi of ICICI Direct says, the deal is positive for Reliance Capital. "This is definitely a booster for the company. We have our target price around Rs 470 on the stock," she adds.

Below is the edited transcript of her interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh. Also watch the accompanying video.

Q: How have you looked at this deal? What do the valuations look like? What is your take on the stock from here?

A: We believe the Nippon deal, under current circumstances where assets under management (AUMs) are falling, is quite good. Reliance Capital is getting around 6.5% on the current AUM, putting the company's valuation at Rs 5,250 crore. That is converting to Rs 200 per share.

Currently, the stock is trading at around Rs 328-330. So, this is definitely a booster for the company. This was expected to be coming because they had mentioned that first priority will be given to Nippon. We assume it's a positive. We have our target price around Rs 470 on the stock.

Q: How do you arrive at Rs 470? At the moment, the marketcap is at Rs 8,000 crore. This deal alone will give Reliance Capital's share in the AMC business at Rs 4,000 crore and then they have a fairly decent valuation of the insurance business as well from Nippon.

A: On sum-of-the-parts (SOTP) basis, we were anyways valuing AMC business on a forward basis at around Rs 200. But that was factoring in some upside to the existing AUM.

On the life insurance business side, we have around Rs 160-170 per share. We have general insurance at about Rs 10 per share. Consumer finance business and broking and others put together the balance bunch.

Q: How does this give respite to the balance sheet? In terms of debt, if they pump this in, how much do you think it would ease off?

A: In terms of debt, they are not having any major pressure because only consumer finance business is one which needs borrowing in order to fund the future lending business.

Otherwise, on overall networth perspective, they are not at all strained because they do have go do amount of investments which they keep on selling as and when required to fund the various businesses. We don't see a pressure, particularly in Reliance Capital as an entity on the debt side.