Reliance Capital - Tax write-back boosts bottom line - Centrum

R Cap's Q4FY13 results came in well above our estimates (PAT at 1560mn), even as topline was below estimates. The earnings beat can be traced to a tax write back of ~Rs1000mn. From segmental perspective, all the businesses (expect life insurance) continue to perform well. We maintain our positive stance on the stock led by anticipated improvement in broader macro and easing of sector specific challenges for each business.

- Commercial finance: Net Interest Income grew by a robust 27% helped by sequentially higher NIM though loan growth was tepid at 3% due to securitization. From a segmental perspective, SME and mortgages were key drivers (17% and 1% respectively). Asset quality eased QoQ with GNPA improving by 20bps sequentially to 1.7% (90-day basis) and by 10% on absolute basis. With macro anticipated to improve, the company intends to grow its book at faster pace though within constrains placed by capital.

- Asset management: Led by favourable response to debt schemes, the debt AUM surged by 36% YoY and 9% QoQ. This along with good AUM traction in Hedge funds and PMS resulted into a 9% YoY growth in revenues. Importantly, the expenses growth was contained at 2% YoY as the debt scheme related expenses got booked in H1FY13. Consequently, the PBT grew by 14% YoY.

- Life insurance: Life insurance business continued to face tough operating environment with Q4FY13 witnessing 37% decline in new business premiums resulting in erosion in market share to 4.5%. Notably, after 10 quarters the agency force saw additions during Q4FY13 as RLife stepped up efforts to protect its market share and penetrate Top-10 cities. On a positive note, the NBAP margin for FY13 stood at 20.2% (vs 15.6% in FY12) though likely to erode during FY14 led by revision in guidelines for traditional policies.

- General insurance: Q4FY13 saw ticket size coming down as GWP growth of 12% trailed 23% growth in policies issued. Importantly, the profitability of the business improved further with PAT up 9% QoQ. For FY14, RGEN's share in motor pool losses is limited at Rs650mn (vsRs1840mn in FY13) and would represent the last obligation. Given this, the management expects the combined ratio for FY14 to head towards 100% from 115% currently.

- Broking and distribution: The performance of broking business was weak as Q4 seasonal uptick in volumes was not as strong as year ago leading to 18% decline in revenues. Bottomline reflects a 48% YoY drop though it is due to bunching of wealth and investment banking fees during Q4FY12. Meanwhile, distribution business saw a healthy 18% growth in topline helped by traction in gold distribution post launch of 'My Gold Plan'. However, bottomline declined by 43% YoY due to investment in footprint expansion.

Maintain Buy: R Cap's earnings have been volatile over the past few quarters due to gains from stake sale and consolidation of group entities. Post the consolidation phase, the core businesses (AMC, commercial financing) have seen a reasonable stability with general insurance turning profitable since Q3FY13. In the light of the substantial inherent value in life insurance and asset management businesses, ramp up in consumer financing and stability in general insurance business, we maintain Buy with SOTP based fair value estimate of Rs550 per share.

Source : Equity Bulls

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