Q3 earnings: Edelweiss Sec reviews Reliance Cap's results

In an interview to CNBC-TV18, Kunal Shah of Edelweiss Securities speaks about Reliance Capital’s results and gives his outlook going forward.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: Reliance Capital’s general insurance business has continued to underperform. That seems to be a drag on the overall profitability. By when are you expecting a turnaround in that for Reliance Capital?

A: Overall, we are expecting the loss in this business to be somewhere in the range of Rs 250 crore odd for the full year. Last year, in FY11, they did almost Rs 300 crore of loss on the general insurance side. So, we can expect another Rs 170-180 crore of hit on the general insurance in the next quarter.

General insurance has been a drag on earnings. Over the last two-three quarters, the numbers have been bit subdued mainly because no investment profits have been booked. But we had seen some of the deals being crystallised with Nippon life in life insurance as well as asset management business. So, the stake sale would add on to the profitability and to the earnings in the next quarter as well as we go forward into FY13.

Q: It’s most likely that the RBI is going to come in with some rules for the gold loan companies. These could take either the form of investor protection and or take the form of slowing down the flow of loans to NBFCs, may be asking them for stiffer provisioning. We do not know yet, but some rules could be coming in. How are you approaching the sector? Are the couple of listed stocks priced to perfection or do you think that there could be some profit taking?

A: Overall, if we are at the peak of the interest rate cycle, some of these stocks would see the benefit in terms of better margins. So, that would be the key trigger for the stocks. In terms of disbursements or say in terms of loan growth, it would be pretty much dependent on which sub-segment you are looking at.

We have seen positive developments happening on the SEB side as well as on the coal linkages, there have been discussions with the ministry. On the power side, we could see some positive developments which would help the infra financing disbursements. Housing is pretty much continuing at a very steady pace of 20% kind of a loan growth. Car and other auto loans, we have not yet seen any moderation in growth. In fact CVs is reporting much higher than the industry average growth in credit.

There is some overhang in terms of the RBIs regulation with respect to gold loan companies. But the growth has been quite significant for them over last two-three years. That is also driven by branch expansion. So, to that extent, we are building in some moderation for gold loan companies in terms of growth. But definitely when we look at some of the bank credit, which is still at 17-18%, NBFCs would continue to deliver slightly higher than that.