Reliance Capital – Slower Growth

Reliance Capital’s 4QFY10 net profit at Rs645mn, down 79% yoy on lower capital gains booked during the quarter. Also, we saw consolidation of market share across businesses and cost rationalization. But core earnings have consistently grown during last few quarters (at Rs470mn vs. loss of Rs20 mn in 4QFY09). In particular, life insurance and AMC, the largest contributors (73%) to the SOTP have done better than est. in terms of growth (life insurance) and profitability (AMC). General insurance and broking continued to be a drag.

R-Cap’s life insurance premia grew 51% (8% yoy growth in 3QFY10) in 4QFY10 (18% in FY10). Moreover, it’s NBAP margins were +19% and it gained mkt. share. While we cut our growth est. to 16% in FY11 and margins to 16.6% by FY12 owing to the regulatory headwinds, R-Life is likely to remain a dominant player. Further, AMC biz. Earning grew at 46% (~10% ahead of est.) and AUM up +32%. Also moving to ‘growth mode’ in cons. finance biz. (disb. up 64% qoq in 4Q).

Consumer finance is also back on growth mode, having disbursed 47% yoy more (to Rs58bn in FY10). 88% of the book continues to be secured (vs. 75% in FY09). Outstanding book increased by only 7% yoy due to securitization of Rs25bn.

The general insurance (combined ratio, including motor pool flat at 117% vs. 114% in FY09 due to higher combined ratios in health segment. Reliance Money continues to be restructured by rationalizing reach, branches, etc resulting in weaker PBT yoy.