Result Update

November 16, 2017

Rating matrix
Rating Buy Reliance Capital (RELCAP) | 425
Target | 660
Target Period
Potential Upside
12 months
53%
Growth business, value unlocking - key positives
 Reliance Capital reported in line consolidated results on the topline
What’s Changed? front with revenues growing 7% to | 5254 crore in spite of treating
Target Changed from |854 to |660 AMC as an associate from the subsidiary. One-time capital gains from
EPS FY18E Changed from |53.9 to |49.9 an earlier stake sale to Nippon Life in AMC resulted in PAT growth
EPS FY19E Changed from |69 to |61.1 higher than estimate to | 352 crore
Rating Unchanged  AMC (listed) remained strong with reported strong revenue at | 436
crore while PBT grew 20% YoY to | 177 crore (Q1FY18- | 150 crore).
Quarterly Performance AUM grew 21% YY to | 381514 crore
| Crore Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ(%)  The life insurance business continued its moderate performance
Income from oper. 5254 4926 6.7 4857 8.2 whereby new business premium declined 37%YoY at | 206 crore and
Total expenditure 4810 4528 6.2 4491 7.1 marginal growth was in renewal premium to | 762 crore from | 741
PBT 444 398 11.5 366 21.2 crore YoY. Life business reported a PBT loss of | 5 crore. It reported
Tax + Minority 92 145 -36.6 128 -28.4 an EV of | 3174 crore rising from | 3040 crore YoY
PAT 352 253 39.0 238 47.9
 Home finance business (listed) remained highlight with healthy
growth of 53% YoY in AUM to | 14119 crore. NII and PBT came in at
Key Financials | 101 crore, up 75% YoY and | 59 crore up 85% YoY, respectively.
| crore FY16E FY17E FY18E FY19E Commercial finance profitability grew 7% YoY to | 92 crore PBT, led
Revenues 9998 17640 19028 21408
by 3% YoY rise in AUM at | 16281 crore.
PBT 1733 1538 1933 2259
Adjusted PAT 1101 1086 1262 1545
 General insurance reported growth of 16% YoY in gross written
premium at | 1688 crore. PAT grew 40% YoY to | 47 crore. Combined
ratio in Q2 was at 109%, down from 122% YoY. It was 104% in Q1.
Valuation summary Expected IPO before March 2018 may prompt for business efficiency
FY16 FY17E FY18E FY19E Standalone company turns core investment company from FY17
P/E 9.9 10.0 8.6 7.0
Target P/E 16.1 16.3 14.0 11.5
Reliance Capital has demerged its home finance. The standalone company
P/ABV 0.8 0.8 0.8 0.7 is a pure core investment company (CIC) GI and AMC (done) and will be
Target P/ABV 1.3 1.3 1.2 1.1 listed separately in FY18.
RoE 7.4 6.7 7.2 8.2
RoA 2.0 1.5 1.5 1.6 Exhibit 1: Revenue, PBT of various segments (AMC no longer a subsidiary)
Q2FY18
Contribution to P/L (| crore) Revenue PBT consolidation in PBT
Stock data Reliance Life 963.0 -5.0 -2.6
Reliance general insurance 1688.0 47.0 47.0
Market Capitalisation |17826 crore Reliance broking 83.4 13.2 13.2
Net worth (Q1FY18) |16780 crore Reliance AMC 436.0 177.0 81.4
52 week H/L 706/365 Reliance commercial Fin 490.0 61.9 61.9
Equity capital | 253 Crore Reliance Housing Finance 382.0 45.0 45.0
Face value | 10 Source: Company, ICICIdirect.com Research, AMC shown here is not consolidated from Q2FY18
DII Holding (%) 12.6
FII Holding (%) 18.2
Enhanced “management focus”, surge in earnings growth expected
Post demerger of housing finance, Reliance Nippon Life AMC IPO saw
Price performance (%)
huge demand and valued the company at 6.8x AUM. Factoring in Reliance
Return % 1M 3M 6M 12M
Reliance capital -13.3 -25.5 -16.4 19.1
Capital’s stake down to 42% from 46% in AMC and with the holding
HDFC LTD -5.4 -1.5 7.8 31.7 company discount rising to 20%, we get the SoTP valuation at | 700 per
LIC housing -10.5 -10.3 -14.4 12.3 share. We further reduce | 40/share of funded exposure to Reliance
Communication and Reliance Infratel. Accordingly, we value the stock at
| 660 per share. We maintain our BUY rating on the stock. The expected
Research Analyst
IPO of GI is seen before March 2018.
Kajal Gandhi
kajal.gandhi@icicisecurities.com We expect PAT to grow at 19% CAGR in FY17-19E not factoring in capital
Vasant Lohiya
gains from IPO. We expect RoE to move to double digits by FY19E with
vasant.lohiya@icicisecurities.com improving RoE of individual businesses. The recent default by the
Vishal Narnolia promoter group entity in one of its dollar bond payments has led to a
vishal.narnolia@icicisecurities.com sharp correction in ADAG group stocks including Reliance Capital. The
stock is trading at 0.7x FY19E ABV.

ICICI Securities Ltd | Retail Equity Research

 Variance analysis
Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments
Loan book growth remained strong in housing at 53% YoY while
commercial finance grew in AUM but loan book shrinked, yields
declining still NIMs have improved YoY in both businesses due to better
Interest Income 1,734.2 1,822.7 1,368.9 26.7 1,719.5 0.9 cost of funds and business expansion.
Booked capital gains of |150 crore from stake scale in AMC to Nippon
Capital Gains/Dividend 579.6 426.4 410.3 41.3 426.4 35.9 life. Core income from capital gains remained strong too.

Growth of 16% in general insurance premiums and Consolidation of life

Premium Earned 2,656.0 2,775.1 2,522.8 5.3 1,976.1 34.4 insurance business continued, New business premium degrew 37% YoY
MF AUM growth at 21% YoY however not consolidated from Q2FY18
Mgmt & Advisory Fees 11 380 349 -96.8 375 -97.0 onwards.
Brokerage and Commissions 158 107 134 18.0 92 72.8
Other Income 115 190 141 -18.8 269 -57.5

Total Income 5,253.6 5,702.0 4,926.0 6.7 4,857.0 8.2 Despite AMC topline not clubbed of |426 crore, total income was strong
Interest and Finance Charges 987.7 1,040.6 748.6 31.9 955.0 3.4
Other Exp 3,822.3 4,157.6 3,779.6 1.1 3,536.0 8.1
Total Expenses 4,810.0 5,198.1 4,528.2 6.2 4,491.0 7.1
PBT 443.5 503.9 397.8 11.5 366.0 21.2
PAT 351.9 297.7 253.2 39.0 238.0 47.9 Higher capital gains led to profit being better than estimate
Source: Company, ICICIdirect.com Research, YoY numbers not comparable on fees front due to AMC not consolidated from Q2FY18

Change in estimates
FY18E FY19E
(| Crore) Oldnew reworked % Change Oldnew reworked % Change
Total Income* 18,727.5 19,028.0 1.6 21,501.0 21,408.4 -0.4
PBT* 1,974.2 1,933.1 -2.1 2,559.7 2,259.0 -11.7
PAT (incl subs and associates)* 1,490.5 1,261.9 -15.3 1,894.2 1,544.7 -18.4
ABV (|) 541.0 568.3 5.0 597.3 610.7 2.2
Source: Company, ICICIdirect.com Research
*Capital gain from stake sale in Life insurance and AMC have not factored in estimates

Assumptions
Current Earlier
FY16 FY17E FY18E FY19E FY18E FY19E
Commercial Finance growth (%) 8.0 16.0 20.0 15.0 15.0 15.0
9% Life Ins Premium growth (%) -24.7 -32.5 16.4 14.0 13.7 14.0
General Ins GWP growth (%) 4.2 40.3 19.7 18.0 19.7 18.0
AUM growth (%) 17.5 22.0 16.0 16.0 15.0 16.0
ot Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

 Company Analysis
Business interests…
Reliance Capital is a key financial services company of the Reliance ADAG
group with interests in insurance (life and general), asset management,
consumer loans, private equity and brokerage. In the insurance space,
Reliance Life is growing fast within private. Current stakes are: life
insurance (51%) and general insurance (100%), commercial finance
(100%) and AMC (51%). Overall profit came from the core businesses with
no one-offs. We expect the trend to continue.

Consistently, Reliance Capital is divesting stakes and utilising funds to

clean the B/S. We believe most of the pain has been taken while the
current equity book is in profit.
With profits expansion seen at 27% CAGR to | 1746 crore, we can see
adjusted RoEs reaching double digits in a couple of years. FY17
consolidated PAT was at | 1085 crore similar to (| 1100 crore and | 1002
crore in FY16 and FY15, respectively). Strong capital gains continued to
remain one strong component of past profits. This is expected to
moderate gradually with core profits improving.
However, divesting stake in Reliance Nippon life AMC and general
insurance through IPO in FY18 will lead to capital gains for Reliance Capital
holding company. We have not factored the same in our estimates.

Exhibit 2: Consolidated profit summary

Particulars Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
Interest Income 953 990 946 996 1041 1099 1099 1003 1302 1369 1413 1503 1720 1734
Capital Gains/Dividend 72 101 119 413 107 79 90 652 293 410 201 433 426 580
Premium Earned 783 648 656 663 862 749 664 667 1559 2523 1833 2105 1976 2656
Mgmt & Advisory Fees 185 197 227 260 297 306 311 313 296 349 336 380 375 11
Brokerage and Commissions 89 79 74 61 75 16 53 60 82 134 58 143 92 158
Other Income 61 71 83 134 76 113 100 133 132 141 123 522 269 115
Total Income 2144 2085 2105 2527 2457 2361 2318 2828 3663 4926 3964 5086 4857 5254
Interest and Finance Charges 684 660 667 632 685 701 708 727 709 749 781 830 955 988
Other Exp 1301 1161 1159 1368 1492 1299 1241 1379 2629 3780 2841 3783 3536 3822
Total Expenses 1985 1821 1826 1999 2177 2000 1950 2106 3338 4528 3621 4613 4491 4810
PBT 159 263 281 528 280 361 369 722 325 398 342 473 366 444
PAT 164 218 213 407 201 250 235 415 207 253 210 417 238 352
Source: Company, ICICIdirect.com Research

Capital gains from of | 579 crore included stake sale in AMC. Reliance
Capital reported in line consolidated results on topline front with revenues
growing 7% to | 5254 crore in spite of treating AMC as associate from
subsidiary. One-time capital gains from earlier stake sale to Nippon Life in
AMC resulted in PAT growth higher than estimate to | 352 crore.

The ~| 250 crore from Paytm stake sale led to a surge in Q4 PAT to | 416
crore, flat YoY and double QoQ. FY17 PAT was at | 1010 crore vs. | 1100
crore.
We believe profits will start picking up for life for FY18E factoring in
improved product mix and high NBAP margins of 28%.
The AMC is expected to continue reporting strong revenue with PBT
expected to grow to | 771 crore by FY19E with AUM growth of ~16%
CAGR.
The commercial finance loan book started growing post consolidation in
the last two years. However, profits remain strong at ~| 400 crore each
year. We expect loans to grow further at 15% CAGR. Housing finance has
been reporting strong growth in the last two years with AUM of | 11174
crore in FY17. We expect 24% growth over the next two years.

ICICI Securities Ltd | Retail Equity Research Page 3

 Reliance AMC maintains healthy performance…
MF AUM surged 26% YoY to | 231430 crore led by an improvement in
debt and equity funds. Retail debt on an average forms >30% of overall
debt AUMs. In Q2FY18, the topline and PBT grew 20% YoY to | 4365 crore
and | 177 crore, respectively. PAT grew 25% YoY to |125 crore. Total
AUM also witnessed growth at 19% YoY at | 381510 crore led by a
continued surge in debt, equity and pension funds. RoE of AMC is strong
at 29% rising from 25%. We have assumed 16% CAGR in total MF AUM
over FY17-19E.
Nippon Life Insurance has completed acquisition of 49% stake in Reliance
Nippon Asset Management Ltd as earlier agreed. Reliance Capital received
| 378 crore on completion of transaction in Q2FY18 numbers.

Exhibit 3: AUM movement and profits over quarters (| crore)

Particulars Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
Income 220 250 275 313 316 340 341 346 347 361 358 406 395 436
Expenses 106 124 149 205 194 199 200 214 215 214 206 246 244 259
PBT 114 126 126 108 122 141 141 132 132 147 152 160 150 177

AAUM (| crore)
Debt 86730 85530 90570 96440 100270 104130 96820 108970 107030 127490 135720 128100 124260 136000
Equity 33570 38930 45030 46800 51310 51520 47530 48070 51020 54240 53700 60980 69710 74880
Gold 1,770 1,600 1,530 1,450 1,340 1,300 1,380 1,370 1,440 1,400 2,240 2,720 2,610 2,590
MF AUM 122070 126060 137130 144690 152920 156950 158410 158410 158411 183130 195850 210890 222960 231430
Managed Accounts 1,670 1,630 1,560 1,490 1,500 1,470 1,460 1,460 1,480 1,520 1,414 1,280 1,180 1,250
Pension Funds 89860 93890 99390 90580 94410 98070 122290 122290 126790 131810 136100 142510 147880 152390
Offshore Funds 4,740 7,080 6,040 5,700 5,060 4,110 4,331 4,330 3,950 4,010 1,420 1,910 2,210 2,430
Total AAUM 218340 229060 244650 243100 254610 261420 275170 287430 293120 321610 335990 350600 362500 381510
Source: Company, ICICIdirect.com Research

Finance book expected to grow 15% ahead

Financing is the next highest profit making segment with commercial
Finance PBT of | 340 crore with loan growth of 13.7% YoY to | 12440
crore in FY17. AUM also grew 12% YoY to | 16760 crore. NIM was at 5.6%
vs. 6% YoY. Home Finance AUM and NIM were at | 11170 crore and 3.4%,
respectively, in FY17.

We maintain 15-16% growth estimate in the commercial finance loan book

for FY18-19E.
CF book
Commercial finance profitability grew 7% YoY to | 92 crore PBT, led by
3% YoY rise in AUM at | 16281 crore. Loan book de-grew due to planned
rundown of commercial vehicle portfolio. SME segment grew 33% YoY.
Focus is on retail growth build-up and SME now.
Margins also declined further to 5.5% from 5.7% while it improved from
5.4% YoY.
Home finance book
The home finance business (listed) remained the highlight with healthy
growth of 53% YoY in AUM to | 14119 crore. NII and PBT came in at | 101
crore, up 75% YoY and | 59 crore, up 85% YoY, respectively. Commercial
finance profitability grew 7% YoY to | 92 crore PBT, led by 3% YoY rise in
AUM at | 16281 crore.
NPA in home finance business remained stable at 0.8%QoQ. Margins were
stable at 3.9% QoQ.

ICICI Securities Ltd | Retail Equity Research Page 4

 The loan book grew sharply higher by 48% to | 9980 crore in FY17 and
50% YoY in Q1FY18. AUM was at | 13022 as on Q1FY18. The
management has guided for loan growth to remain strong and with a
target of | 50000 crore by the end of year 2020. As on FY17, the loan book
consists of home loan at 33% of AUM, affordable housing is 19%, loan
against property (LAP) is 20% and construction finance of 28%

Exhibit 4: CF business improving

(| Crore) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ(%)
Loan Outstanding 12650.0 11284.5 12.1 13839.0 -8.6
Disbursements 1,606.0 1,610.8 -0.3 3,579.0 -55.1
Net Interest Income 168.0 163.8 2.6 176.4 -4.8
Total Income 501.6 493.0 1.7 490.0 2.4
Total Expenses 89.0 65.5 35.9 94.6 -5.9
Interest expenses 264.4 280.9 -5.9 259.0 2.1
Provisions 55.8 59.9 -6.8 74.5 -25.1
PBT 92.4 86.7 6.6 61.9 49.3
Source: Company, ICICIdirect.com Research

Exhibit 5: Home finance business depicts strong growth

(| Crore) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ(%)
Loan Outstanding 12610.0 7928.0 59.1 11680.0 8.0
Disbursements 2,002.5 1,593.0 25.7 2,655.0 -24.6
Net Interest Income 101.6 58.0 75.2 76.0 33.7
Total Income 406.9 269.6 50.9 374.0 8.8
Total Expenses 66.1 60.6 9.1 58.2 13.6
Interest expenses 266.3 181.2 47.0 236.0 12.8
Provisions 15.6 8.8 77.3 34.8 NA
PBT 58.9 32.0 84.1 45.0 30.9
Source: Company, ICICIdirect.com Research

LAP continues to be there in both portfolios separately with 21% share in

home and 13% in CF. LAP AUM will continuously decline in CF and
incrementally be built in home loans.
Home loans and affordable housing form 35% and 19% respectively.

ICICI Securities Ltd | Retail Equity Research Page 5

 Exhibit 6: Commercial finance loans(Q1FY18) Exhibit 7: CF loan book (Q2FY18)

Infra
Infra Financin LAP
Financing g, 11%
9%
SME SME,
38%
49%

construct construc
ion fin tion fin
9%
Others Others,
27% 20%
Commer
cial
Vehicle

Source: Company Presentation, ICICIdirect.com Research

Life insurance business

Traditional business contributed 83% vs 79% of Individual
NBP
Persistency improved from 60% in FY16 to 66% in Q1FY18
For FY16, life insurance profitability (PBT) dipped into the red at a loss of
| 255 crore vs. profit of | 135 crore in FY15, led by slower traction in new
business premium. It provided ~| 100 crore for decline in discounting rate
and expense ratio as per regulatory requirement, which led to Q4FY16
profitability into red reporting huge loss of | 255 crore. GWP grew 5.1%
YoY to | 4592 crore in FY16.
In FY17, life insurance business remained weak as it weeded out
unprofitable business whereby new business premium declined to | 1050
crore from | 1558 crore led by 12% YoY decline in first year premium. Life
business reported loss of | 61 crore both in Q4 and FY17 compared to
| 0.1 crore profit in Q3FY17 and | 197 crore loss, respectively, in FY16.
For FY17, it reported EV of | 3040 crore, rising 12% YoY and NBAP margin
of 26.8% as shift to traditional business is high.
We expect non-single first year premium (FYP) to grow at ~13-14% CAGR
in FY17-19E to | 3034 crore with profit improving from current levels.
Q2FY18 continued losses at | 5 crore. Life insurance business continued
moderate performance whereby new business premium declined 37%YoY
at | 206 crore and marginal growth was in renewal premium to | 762 crore
from |741 crore YoY. Life business reported a PBT loss of | 5 crore. It
reported an EV of |3174 crore rising from | 3040 crore YoY.
Focus remains on traditional business at 83% of NBP individual and
persistency improving to 68%.

ICICI Securities Ltd | Retail Equity Research Page 6

 Exhibit 8: Life insurance premium (NBP)
11 10.3

9 8.1
7.3
7
5.9 5.8 5.9

(| Billion)
5.6
5.15.1 5.0
4.7 4.3
5 4.14.0 4.0 4.2 3.7
3.23.4 3.0 2.8 3.3 3.3
3 2.6 2.5
1.8 2.1 1.81.8

Q2FY11

Q4FY11

Q2FY12

Q4FY12

Q2FY13

Q4FY13

Q2FY14

Q4FY14

Q2FY15

Q4FY15

Q2FY16

Q4FY16

Q2FY17

Q4FY17

Q2FY18
Source: Company Quarterly Presentation, ICICIdirect.com Research

Exhibit 9: Life premiums moderation due to shift to changing product mix, expect growth coming in FY18E
Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
First year premium 411.8 462.3 271.1 562.9 269.0 343.7 160.3 306.7 185.3 305.0 164.1 187.9
Single premium 20.3 35 29.7 37.8 15.8 28.3 22.7 22 29.4 20.3 18.9 18.7
Total New business premium 432.1 497.3 300.8 600.7 284.9 372.0 183.0 328.7 214.6 325.3 183.0 206.6
Renewal Premium 624.5 884.9 451.1 672.9 705.8 1009.6 471.6 741.6 775.7 986.4 521 762.4
Total premium (net reins) 1052.0 1402.7 746.5 1262.9 986.2 1375.0 649.6 1063.6 980.8 1305.3 700.0 963.0
Profit before tax 39.5 8.7 35.2 15.1 7.7 -255.3 0.2 0.1 0.10 -61.50 -13.80 -5.00
Total funds under mgmt 18599.5 16924.0 15906.1 15523.9 16038.1 15969.6 15817.8 16270.6 16246.6 17253.0 17400.0 17982.7
NBAP margin (%) 26.8
Source: Company, ICICIdirect.com Research

The life insurance business was started with the acquisition of AMP
Sanmar Life Insurance in 2005. In the last few years, profits generated in
this business have been consolidated. Also, the performance has been
relatively improving post the slump after 2007-08 as total premium grew
5% YoY and new business premium grew 40% YoY to | 1930 crore vs.
23% dip in FY13. FY13 PBT was | 380 crore mainly due to rising
proportion of traditional policies business in the overall mix. FY14
continued the same further with PBT growing to | 359 crore. However,
~| 160 crore of the same was contributed by surrender profits. NBAP
margin has positively improved to 23% vs. 20%. This seems far higher
than peers. Current reported FY17 NBAP margin stood at 28%.

ICICI Securities Ltd | Retail Equity Research Page 7

 General insurance improves profitability, provisions keep combined ratio high
Exhibit 10: General insurance business mix (%)

Q2FY18

Motor, 34

Health, 15

Fire & Eng, 20

Source: Company Quarterly Presentation, ICICIdirect.com Research

General insurance reported growth of 16% YoY in gross written premium

at | 1688 crore. PAT grew 40% YoY to | 47 crore. Combined ratio in Q2
stood at 109% down from 122% YoY and it was 104% in Q1. Expected IPO
before March 2018 to prompt for business efficiency.
FY17 PAT was at | 130 crore up 32% YoY. Excluding one-time provisions,
it was at | 312 crore. We factor gradual reduction combined ratio leading
to improved profits for FY18-19E.
GWP growth remained muted at 4.2% YoY to | 2868 crore in FY16 after
growing at 15% plus in FY14-15. Motor formed 58% of gross premium
earned. PBT of | 99.1 crore for FY16 vs. | 81.4 crore in FY15 depicts an
improving trend. Profit was reported at | 64 crore in FY14 vs. loss of | 90
crore in FY13.
The combined ratio has improved over time from highs of 140% to 124%
and 115% in FY17. Also, provision due to third party motor pool claims
and exceptional provisioning for ‘Motor Decline Risk’ pool has been fully
taken in FY14. This had impacted FY12 and FY13 profitability leading to
losses (FY13 - | 90 crore loss). Led by crop insurance of ~| 800 crore,
Q2FY17 witnessed strong growth of 116% YoY in gross written premium
at | 1451.6 crore. However, in Q3FY17, the same declined to~| 120 crore
leading to a decline in GWP to | 855 crore from | 1451 crore QoQ.
In the near term, divestment in general insurance through IPO in FY18 is
expected.

ICICI Securities Ltd | Retail Equity Research Page 8

 Exhibit 11: General insurance may see healthy profit trend | crore
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
Gross Written Premium 908.4 1451.6 855.4 791.6 1278.0 1688.0
PAT 36.3 33.3 18.3 42.1 44.0 47.0
Investment Book 5668.7 6284.0 6483.0 6724.0 6888.0 7280.0
Combined Ratio (%) 114 122 132 115.0 104.0 109.0
No of Policies issued in mn 1.0 1.0 1.0 1.1 1.1 1.1
Source: Company, ICICIdirect.com Research

Consolidated Entity

Exhibit 12: Consolidated debt on books

FY11 FY12 FY13 FY14 FY15 FY16 FY17
Bank Loans 10214.2 10486.1 11372.7 10639.3 10732.9 13202.2 13798.2
Commercial Papers 4461.3 2932.2 3673.2 4860.4 3649.9 3322.2 5462.7
NCDs 5645.0 6116.7 7453.4 10027.8 11627.2 11371.1 19988.0
Others 54.1 55 10.4 49.1 128.8 139.8 11.5
Total 20374.6 19590.0 22509.7 25576.6 26138.8 28035.4 39260.6
Source: Company Quarterly Presentation, ICICIdirect.com Research

Investments book
Reliance Capital has transferred few of the investments to an SPV post
restructuring and being CIC. It funded the same with capital of |1500 odd
crore and carrying similar investments.
All put together non-core investments are | 10000 crore as per
management in the conference call. In the same media and entertainment
investments were to the tune of ~| 6000 crore.
With expected closure of radio business deal (RMVL) in the near term,
~| 2000 crore can come. From Prime focus around | 1200 crore is
expected. The proceeds will be used to pay off debt in the books. Process
of exiting most of these non-core investments is under process.

ICICI Securities Ltd | Retail Equity Research Page 9

 Outlook and valuation
Enhanced “Management Focus”, surge in earnings growth expected
Post demerger of housing finance, Reliance Nippon Life AMC IPO saw
huge demand and valued the company at 6.8x AUM. Factoring Reliance
capital stake down to 42% from 46% in AMC and with the holding
company discount rising to 20%, we get the SoTP valuation at |700 per
share. We further reduce |40 per share of funded exposure to reliance
communication Reliance Infratel. Accordingly, we value the stock at |660
per share. We maintain our BUY rating on the stock. Expected IPO of GI
seen before March 2018.
We expect PAT to grow at 19% CAGR in FY17-19E not factoring capital
gains from IPO. We expect RoE to move to double digits by FY19E with
improving RoE of individual businesses. Recent default by promoter group
entity in one of its dollar bond payments have led to sharp correction in
ADAG group stocks including Reliance capital. The stock is trading at 0.7x
FY19E ABV.

Actions expected in near term

Listing of General insurance
Sale of non- core investments fully by March 2019, ~40% by March 2018

Exhibit 13: Valuation on SOTP basis

Business Segment FY19E |/share
Reliance Life @51% 149
Reliance General Insurance @100% 152
Reliance Broking @100% 20
Reliance AMC @42.8% 251
Reliance Consumer Finance @100% 210
Reliance Home Finance @51% 94
Total per share of Rcap 875
Holding co. disc 175
Value per share of Rcap 700
Rel com exposure 40
Value per share of Rcap 660
Source: ICICIdirect.com Research

Exhibit 14: Valuation Summary

FY14 FY15E FY16E FY17E FY18E FY19E
Net Profit (| crore) 747.0 1002.0 1101.0 1086.0 1261.9 1544.7
EPS ((|) 30.6 39.6 43.5 42.9 49.9 61.1
% Growth -0.8 29.6 9.9 -1.4 16.2 22.4
P/E (x) 14.1 10.9 9.9 10.0 8.6 7.0
BV 415.6 443.4 528.3 518.9 568.3 610.7
Price / Book (x) 1.0 1.0 0.8 0.8 0.8 0.7
RoNA (%) 1.7 2.0 2.0 1.5 1.5 1.6
RoE (%) 6.1 7.8 7.4 6.7 7.2 8.2
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

Recommendation History vs. Consensus
900 120.0
800
100.0
700
600 80.0
500
(|)

60.0

(%)
400
300 40.0
200
20.0
100
0 0.0
Nov-15 Jan-16 Apr-16 Jun-16 Aug-16 Nov-16 Jan-17 Apr-17 Jun-17 Sep-17 Nov-17

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date Event
FY05 Reliance Capital forays into life insurance - Does acquisition of AMP Sanmar Life Insurance
FY08 Reliance Money buys 15% stake in the yet-to-be launched Hong Kong Mercantile Exchange for an undisclosed amount.
FY08 Makes life high peak with stock crossing | 2600 levels
FY11 Reliance Commercial Finance launches loan against gold units
FY11 Reliance Capital signs deal with Nippon Life to sell 26% stake in life insurance
Jan-12 Nippon signs final agreements to acquire 26% stake in Reliance Capital Asset Management
FY12 Applies for banking licence with RBI
FY14 Failure to receive banking license wherein the RBI granted it to IDFC Ltd and Bandhan Financial services (a microfinance company)
Apr-14 Evinces interest in acquiring FTIL's stake in Multi Commodity Exchange (MCX)
Oct-15 Announces purchase of Goldman Sach AMC business in India
Oct-15 Announces further 9% stake sale in Reliance Capital AMC
Sep-16 Home Finance demerger announced and to be listed on exchanges, with reliance capital shareholders getting one share of housing finance for each share held

Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
1 Reliance ADA Group 30-09-2017 50.25% 126.97M 0 Promoter 52.1 52.0 52.3 52.3 52.2
2 Life Insurance Corporation of India 30-09-2017 4.16% 10.51M 0 FII 20.8 18.3 18.7 17.8 19.3
3 Sumitomo Mitsui Trust Bank, Limited 30-06-2017 2.77% 7.00M 0 DII 10.6 11.7 12.1 12.6 10.5
4 Cinnamon Capital, Ltd. 30-09-2017 2.10% 5.31M +5.31M Others 16.5 18.0 16.9 19.1 17.9
5 Reliance Nippon Life Asset Management Limited 30-09-2017 1.91% 4.83M +0.50M
6 Dimensional Fund Advisors, L.P. 30-09-2017 1.82% 4.59M +0.00M
7 Aditya Birla Sun Life AMC Limited 30-09-2017 1.64% 4.16M +0.09M
8 The Vanguard Group, Inc. 30-09-2017 1.61% 4.07M -0.17M
9 Jupiter Asset Management Ltd. 30-09-2017 1.52% 3.85M -1.86M
10 Valiant Mauritius Partners Offshore, Ltd. 30-06-2017 1.35% 3.41M 0
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys Sells
Investor name Value Shares Investor name Value Shares
Cinnamon Capital, Ltd. +47.62M +5.31M Jupiter Asset Management Ltd. -16.70M -1.86M
ICICI Prudential Asset Management Co. Ltd. +9.79M +1.09M IDFC Asset Management Company Private Limited -10.07M -1.12M
UTI Asset Management Co. Ltd. +5.22M +0.58M Excel Funds Management Inc. -2.89M -0.29M
Kotak Mahindra Asset Management Company Ltd. +4.98M +0.56M The Vanguard Group, Inc. -1.56M -0.17M
Reliance Nippon Life Asset Management Limited +4.47M +0.50M Driehaus Capital Management, LLC -1.26M -0.15M
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

Financial summary
Profit and loss statement | Crore Key Ratios
(Year-end March) FY16 FY17E FY18E FY19E (Year-end March) FY16 FY17E FY18E FY19E
Commercial Finance 1839.0 1953.0 2207.1 2574.0 Net Profit (| crore) 1101.0 1086.0 1261.9 1544.7
Housing fin 815.0 1114.0 1504.9 2190.3 EPS ((|) 43.5 42.9 49.9 61.1
Life Insurance 0.0 5792.0 6086.7 6630.1 % Growth 9.9 -1.4 16.2 22.4
General Insurance 3530.0 4906.0 5752.6 6753.6 P/E (x) 9.9 10.0 8.6 7.0
Asset Management 1203.0 1308.0 1464.1 1698.4 ABV 528.3 518.9 568.3 610.7
Total income 9,997.9 17,639.6 19,028.0 21,408.4 Price / Book (x) 0.8 0.8 0.8 0.7
Operating expense 5369.0 13033.0 14193.8 15861.6 Price / Adj Book (x) 0.8 0.8 0.8 0.7
PBT 1732.5 1538.0 1933.1 2259.0 RoNA (%) 2.0 1.5 1.5 1.6
Adjusted Net Profit 1,101.0 1,086.0 1,261.9 1,544.7 RoE (%) 7.4 6.7 7.2 8.2
% growth 9.9 -1.4 16.2 22.4
EPS (|) 43.6 42.9 49.9 61.1
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research, Reliance AMC currently consolidated –
will change estimates

Balance sheet | Crore

(Year-end March) FY16 FY17E FY18E FY19E
Sources of Funds
Capital 253.0 253.0 253.2 253.2
Reserves and Surplus 15313.9 16712.4 17961.6 19034.9
Networth 15566.9 16965.4 18214.8 19288.1
Long and short term borrowing 28035.0 39260.6 42240.5 46761.7
Current liabilities and others 23485.7 25983.2 28030.0 37035.1
Total 67087.6 82209.2 88485.2 103084.9

Application of Funds
Fixed Assets 5515.5 5747.5 5862.5 5979.7
Investments 25279.6 34478.9 34178.9 33778.9
Advances 30105.0 33341.0 36368.4 43484.6
Other current assets 6187.5 8641.8 12075.5 19841.7
Total 67087.6 82209.2 88485.2 103084.9
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 12

ICICIdirect.com coverage universe (NBFC)
CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%)
Sector / Company (|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
LIC Housing Finance (LICHF) 583 650 Hold 29,545 38.3 43.2 53.7 15.2 13.5 10.8 2.7 2.3 1.9 1.4 1.3 1.5 19.1 18.0 18.7
Reliance Capital (RELCAP) 455 660 Buy 11,891 42.7 53.9 69.0 10.7 8.4 6.6 0.9 0.9 0.8 1.5 1.6 1.9 6.7 7.9 9.7
HDFC (HDFC) 1,665 2,080 Buy 264,889 46.8 50.7 59.1 35.5 32.9 28.2 7.2 6.5 5.8 2.4 2.2 2.3 21.0 20.7 21.8
CARE (CARE) 1,415 1,750 Buy 4,109 51.4 59.9 69.3 27.5 23.6 20.4 8.4 7.3 6.4 36.4 36.5 38.0 30.4 31.0 31.2
Bajaj Finserv (BAFINS) 4,970 6,000 Buy 79,758 142.2 200.3 253.8 35.0 24.8 19.6 5.0 4.2 3.4 1.9 2.2 2.4 15.5 18.3 19.2
Bajaj Finance (BAJFI) 1,717 2,050 Buy 101,127 33.9 44.2 57.3 50.6 38.8 30.0 9.8 5.8 5.2 3.3 3.3 3.3 21.6 19.1 18.5
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 13

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research Page 14

ANALYST CERTIFICATION
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ICICI Securities Ltd | Retail Equity Research Page 15