Transcript REL CAPITAL - Rana Singh

RELIANCE CAPITAL LTD.,
We recommend Buy with a price target of 3000-3600.
Buying levels :2200-2350.
The scrip has consolidated at 2200 levels and has
formed a double bottom at that level. so strong buy
at these levels and in every dip .
The scrip has formed a double top at 2400 level
if crosses the level will attain the target.
Company Outlook
Reliance Capital (RCAP), a non banking financial company, is the financial
service arm of the Anil Dhirubhai Ambani Group (ADAG) which has varied
interests in areas like telecom, energy, entertainment. Reliance Capital is one
of India's leading and fastest growing private sector financial services
companies and ranks among the top 3 private sector financial services and
banking companies, in terms of net worth. Through the company’s
subsidiaries, it offers products and services like mutual fund, life insurance and
general insurance. It has sizable private equity and proprietary investments and
is pursuing new ventures like stock broking, consumer financing and the asset
recovery business as well. Reliance Capital, initially focused on the asset
management business, has recently expanded its presence in life insurance,
general insurance space and ebroking business as well. Reliance Capital
launched Reliance Money, a retail broking and distributor of a range of
financial service products. It has a network of over 2,200 outlets (India’s
largest retail network by a non banking financial services company). Reliance
Capital has 100% economic interest in all the business units.
Valuation Summary
SECTOR OVERVIEW
India’s recent economic growth has been led by the dynamism of its services sector
– particularly the high-end, knowledge-intensive services. Service sector has been
consistently growing at a faster pace than the economy since the liberalisation of the
economy took place in 1991. According to the economic survey of 2007, the
services sector contributes to nearly 55 per cent of India’s GDP.
The financial sector consists of banking, insurance, consumer finance, NBFCs.
According to Indian Brand Equity Foundation (IBEF), the financial sector
contributed around 5 % of the GDP in FY 2007. India’s banking and insurance
sectors have been significantly opened to private sector since 1993 and 2000
respectively. With the deregulation of the Mutual fund industry as well in 1993, the
sector has seen a spate of new private and foreign players.
BANKING
The scenario in the Indian banking industry is changing rapidly. Traditionally, it
was characterised by poor performing public sector banks which employed
outdated practices and technology. The liberalisation process resulted in the
number of private sector scheduled commercial banks increasing to 61, including
31 foreign banks. Private sector banks had increased their share of total assets to
24.7 per cent and foreign banks to 6.6 per cent share. By September 2004, the total
number of foreign bank branches in India was 217. The penetration of banking
services and products in rural India is particularly low, with only 42 per cent of
rural households having bank accounts of which 21 per cent having access to credit
from a formal source and only one percent relying on a loan from a financial
intermediary. Improved access to banking products would greatly benefit rural
businesses and households, and help to raise living standards across the rural sector
as a whole.
INSURANCE
India’s insurance sector, like its banking system, has an important role to play in
enhancing financial intermediation, creating liquidity and mobilising savings in the
economy. The opening of the life and non-life insurance sectors to foreign
investment in the year 2000 spurred increased activity by foreign investors. In spite
of the growing awareness of insurance products, the penetration of the Industry is
abysmally low at 2.5% as compared to the matured markets. This would augur well
for the growth of Insurance sector. In the life insurance sector, there are currently
15 private insurers plus the government-owned Life Insurance Corporation (LIC).
According to the Insurance Regulatory and Development Authority (IRDA), first
year (i.e. new business) premium income of the private insurers for 2006–07 was Rs
19, 500 Crs. In the space of just six years from FY 2002, private insurers have
secured a 26 per cent share in new business segment.
VALUATION
VALUATION
APE (Annualised Premium Equivalents) is sum of FYP and 10% of Single
Premium
Valuation-NBAP Multiple
We believe that Reliance Life Insurance will be among the top players in this
segment by year 2008 due to its reach and the growth rates shown in the previous
years. Its reach will help to penetrate the under-penetrated markets. Due to its
focus on distribution and its rapid scaling-up plans we believe the FYPs should
grow by 150% in FY08 and in the subsequent year a growth rate of 85%. Single
Premiums should grow by 60% in FY08 and 50% in FY09.The NBAP multiple is
expected to increase from 22 to 25 in FY09.
LIFE INSURANCE
Currently around 80% of the countries population is without a life insurance
policy. With the economy booming, the disposable incomes are set to increase
which will increase the number of policy holders dramatically. Life insurance
industry recorded a growth of 110 % in premium collection FY’07. Reliance life
Insurance (RLI) is the fastest growing insurance company in India with a market
share of 4% amongst private insurers. The AUM is Rs. 12 bn. It already has a
reach of 217 branches and may scale up to 400 by FY08 .Its agent force would
increase to nearly 2, 00,000 agents in FY 2008 up from 1, 06,000 agents in FY
2007. Reliance Life grew by 381% in FY07. Reliance expects its growth from
rural areas. It will need a capex of around 1200-1500 crs for this segment of the
business. Of the total premium earned, 88 % is from ULIP plans and 12% from
others. This trend is likely to be seen in the future years as well. Currently banks
are allowed to sell insurance policies of only one Insurance Company. Banks have
a tie up with the insurance company for a period of three years. Since Reliance
Capital is a late entrant in this business it does not have a tie up with any of the
banks to sell its insurance products. However, it has the opportunity to enter into
contracts with banks as and when they come up for renewal after a period of every
three years.
VALUATION
GENERAL INSURANCE
As per industry estimates penetration (as a percentage of GDP) of general insurance
in India has improved marginally from 0.53% to 0.64% over the 5 year period FY
2003-07. General insurance industry in India has grown at
15% CAGR in the past five years in terms of gross premium collection. Given the
low penetration of general insurance and a CAGR of 22 %, Reliance General
Insurance is expected to cash in on these opportunities. Reliance General Insurance
(RGI) is the fastest growing general insurance company and the 4th largest in India
with a market share of 10 % amongst private general Insurers. In FY07, the General
Insurance business posted a growth of 22%, driven by private players’ phenomenal
growth of 60%. Reliance General Insurance has improved its retention ratio from a
35% in FY 06 to 55% in FY 07. The retail segment accounts for 55% of Reliance’s
General Insurance business. There was a marked shift towards motor insurance,
which accounted for a whopping 50% of all retail business. Reliance General
Insurance has expanded its distribution network to 85 branches and regional offices
in FY 2007 from 34 branches and regional
GENERAL INSURANCE
BUSINESS UNIT VALUATION
Disclaimer:
This report has been prepared solely for information purposes and the
information contained herein may not be deemed to be an investment advice. Such
information is impersonal and not tailored to the investment needs of any specific
person. The information contained herein is not a complete analysis of every
material fact representing any company, industry or security. The views expressed
may change. While the information contained herein has been obtained from
sources believed to be reliable, no responsibility (or liability) is accepted for the
accuracy of its contents. Investors are advised to satisfy themselves before making
any investments and should consult with and rely upon their own advisors whether
and how to use such information in making any investment decision. Neither the
author nor his firm accepts any liability arising out of use of the above information/
article. This report is exclusively for the clients of Venkataraman & Co. only.
VENKATARAMAN & CO.,
Stock & Share Brokers, New No.2 (Old No.52)
Dr. Ranga Road, Mylapore, Chennai 600 004.
Web: www.venkataraman .com
E-mail: [email protected]