Edelweiss is recommending investors to book profits in Reliance Capital.
The company’s overall business performance and expect its asset management segment to grow by 45% over FY07-10E, market share in life insurance to improve significantly to 10% by FY09E and 11% in FY10E, and the GWP in general insurance to grow aggressively at 100% plus over FY07-09E. Moreover, we estimate the company’s retail broking business to generate a profit of INR 1,050 mn by FY09E and INR 1,575 mn by FY10E, and its consumer finance book to grow to INR 115 bn by FY09E and INR 185 bn by FY10E.
Sum-of-the-parts (SOTP) framework gives us the base case fair value of INR 1,573 on FY09E and INR 1,874 on FY10E estimates and we believe the stock should hover in this range in the medium term. Investors can book profit at these levels and to view any weakness in the stock as an opportunity to re-enter.
Assigning a 100% probability to what the company seeks to achieve over the next two years, we arrive at the fair value of INR 1,894 on FY09E estimates and INR 2,482 on FY10E basis (best case).