Reliance Capital - Refurbishing core; monetisation crucial; company update; Buy - Edelweiss

Reliance Capital (RCAP) hosted an analyst meet attended by Anil Ambani and management team from across business segments to spell out its growth strategy. Key highlights: a) with spread across scalable businesses (benefitting from higher financial savings) and beefed-up new leadership team across key businesses, the focus is now on execution with the aim to build a profitable business and consequent improvement in RoEs; b) monetisation of non-core assets (substantial reduction by FY18); c) turn-around of life insurance business, potential strategic alliance in general & health insurance segments; and d) foray into personal finance to drive commercial segment growth. We believe business re-jig and monetisation will boost RoE and help deleverage balance sheet. Hence, maintain 'BUY'.

Rejuvenating core and profitable growth top priority

With right presence along with an able and experienced team in place the emphasis is now on execution to drive higher teen RoEs across core businesses. Various strategies across segments, viz: a) Consumer finance: Foray into personal finance (leveraging Mr. Devang Mody's strength) will provide scale; b) Home finance: Large opportunistic landscape and sharper focus given separate listing will propel growth; c) Life insurance: Strategic initiatives and new management will help revive business; d) General insurance: Potential partnerships over next few years will help achieve profitable growth.

Non-core monetisation vital, major reduction by FY18

A major concern with RCAP had been its investment in non-core assets (viz. listed plus non-listed assets). The chairman appears firm to wind down major part of non-core businesses by FY18. This will help efficient capital allocation to focused business areas.

Outlook and valuations: Monetisation awaited; maintain 'BUY'

RCAP's focus on profitable growth with run down in non-core assets will not only enhance capital efficiency but also improve core business performance. Though profitability of insurance remains under pressure, we expect improvement post consolidation. We believe potential improvement in earnings will narrow down the discount between current price and inherent fair value of core businesses. We maintain 'BUY/SP' with SoTP-based TP of INR754 (earlier INR661).

Shares of RELIANCE CAPITAL LTD. was last trading in BSE at Rs.597.85 as compared to the previous close of Rs. 607.8. The total number of shares traded during the day was 563267 in over 10032 trades.

The stock hit an intraday high of Rs. 611 and intraday low of 591.6. The net turnover during the day was Rs. 338459125.

Source : Equity Bulls

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