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Reliance Capital – Life Insurance Valuations Stretched – Citi

June 18, 2009

While equity market performance has a strong correlation with RCaps’ businesses, expect growth in most businesses to lag the rebound in broader markets – in particular, expect relatively moderate growth in life insurance, non-life insurance and consumer finance segments.

RCap is seeking to sell up to a 26% stake in its life insurance business, including likelihood of inducting a strategic stakeholder. The transaction does not come under current FDI cap (100% owned) but requires other regulatory approvals.However, current stock price implies valuations of 20x 1Yr Fwd NBAP multiples, which is at 30-40% premiums to our benchmark values for peers.

RCap’s asset management and brokerage segments should be the first to rebound. While AUMs in the domestic business have grown 46% over Dec’08, retail equity inflows so far, have been modest. We expect brokerage revenues to grow but led by institutional segment as retail investors participate with a lag.

Sum of the Parts Valuation of Reliance Capital according to Citi.
Reliance Mutual Fund AMC – Rs 237
Life Insurance Rs 417
General Insurance – Rs 4
Broking Rs 53
Consumer Finance Rs 92
Investments – Rs 19
taking the total to Rs 821.

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