Buy Reliance Capital; target of Rs 466: ICICIdirect.com

“AMC, consumer finance & distribution segment results were strong but general insurance again reported a loss at the PBT level of Rs 34.4 crore. Consolidated PAT declined 43.4% YoY but surged 80% QoQ to Rs 60.2 crore (I-direct estimate: Rs 36.7 crore). Higher interest costs and general insurance led to lower profit in spite of a robust topline of Rs 1583 crore against our estimate of Rs 1422 crore. Nippon Life has committed the largest FDI in the Indian mutual fund sector till date (Rs 1450 crore) buying a 26% stake in Reliance MF. It is the second investment by the company after it deployed Rs  3000 crore to acquire a 26% stake in Reliance Life in 2011. We re-iterate our BUY rating on the stock with a target price of Rs 466.”

“Capital gains from Nippon Life deal will be reflected in Q4FY12E PAT leading to higher FY12E PAT. Also, by FY12 end, restructuring of stake in Reliance Life will lead to direct ownership of 38% by Reliance capital vs. 16% now. We have factored in capital gains of ~Rs 400 crore in FY12 from this deal. The business has reported PBT of Rs 10.1 crore in Q3FY12 with incrementally 70% business coming from traditional policies. Adjusted premium equivalent (APE) declined 17% YoY to Rs 321 crore in Q3FY12. Nippon Life seems to have valued Reliance Life at 6.7% of the current AUM, which is higher than deals done in the recent past. We believe that as Reliance AMC’s equity proportion is higher at 32%, the valuations are fair. AUM declined further to Rs 82,300 crore, declining 12% QoQ from | 93,100 crore but PBT increased by 7% to Rs 70 crore. Consolidated PBT stands at Rs 103 crore, making the AMC the largest contributor to PBT.”

“Most subsidiaries except general insurance have gained size and are now generating profits. Capital gains from the life and AMC stake sale will keep on adding to profits. We remain bullish on the company and maintain our SOTP target of Rs 466 and recommend BUY,” says ICICIdirect.com research report. 

Public holding more than 90% in Indian cos

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