For instance, the AMC business fetched a net profit of Rs 506 crore in FY16 and is among the profitable asset management businesses in India. Likewise, Reliance General Insurance, which turned profitable in the current financial year, has improved its online presence over what was three years ago, and has also strengthened its banking channel partnerships. As for the 11-year-old life insurance business, the embedded value currently stands at Rs 3,074 crore with an improving persistency ratio at 61% versus 56% a year ago. As the latter improves to average levels of 70% plus for the top players, the valuations could also improve. Currently, analysts value Reliance Capital’s insurance business at 1.7 times the embedded value, as compared to 2.5 times plus for larger peers.
In housing finance, as loans for affordable housing increased substantially, the business posted 61% year-on-year growth in loan disbursements to Rs 4,376 crore in nine months of FY17. Analysts say the asset quality of the business also appears decent with gross non-performing assets at less than 1%. The commercial lending business, focused on small and medium enterprise loans, apart from education, health care and other loans, has a 6% net interest margin, which, according to analysts, is robust.
On the whole, analysts at ICICI Securities recently upgraded the Reliance Capital stock from ‘hold’ to ‘buy’ as they expect the lending, AMC and general insurance businesses to grow at a healthy pace of 13.7-18% in FY18.
Analysts at Edelweiss, who increased their target price on the stock from Rs 661 to Rs 754 after the analysts’ meet, say that a potential improvement in earnings will narrow the discount between the current price and the inherent fair value of the core businesses. A stake sale in the general insurance business and listing of the home finance business would help unlock value. For now, the stock now trades at 0.8x FY18 price-to-book and is among the least expensive non-banking finance companies.