Nippon Life is all set to raise stake in Reliance Capital Asset Management from current 26 percent to 49 percent. Nippon will invest Rs 657 crore for an additional 9 percent stake in the first tranche to reach 35 percent. It will acquire further 14 percent stake in multiple tranches.
P Phani Sekhar of Angel Broking and Nipun Mehta of Blue Ocean Capital Advisors believe it is the right time to buy the stock.
According to Mehta, the deal is a benchmark on the valuations of the asset management industry, even though all the money would be going to Reliance Asset Management Company and not necessarily to capital-intensive business. However, at the same time Reliance Capital is one of the largest contributors in terms of profit before tax amongst all other businesses, he says.
Mehta thinks that a further increase in stake by Nippon (14 percent more to take it to 49 percent), if it comes by, could also be a significant capital infusion for the AMC.
“So overall, the cash strength of the entire group has been increased. Return on assets can be improved further on. At the current valuations the stock looks reasonably attractive,” he says.
Phani Sekhar is positive on Reliance Capital. According to him, a large part of the company’s value is derived from the insurance business, which is doing well. He feels FDI in insurance could be a major trigger and if that happens one can expect some re-rating.
The company is emerging as a major player in commercial loans business – be it mortgages or loan against property. It has two very strong market-linked businesses -- mutual fund and securities -- which to a large extent were responsible for its underperformance over the last 3-4 years, says Sekhar.
However, he thinks the enhanced valuations benchmark from the mutual fund business would make its valuation re-rating much easier now.
“The fact that it is still trading at close to book value, although return on equity is lower, makes the stock very attractive. I’m looking at 45-50 percent upside in 15-18 months time,” he adds.
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