>RELIANCE CAPITAL LIMITED (MERRILL LYNCH)

■ Life insurance business moving towards profitability
R-Cap has outlined major initiatives, which we believe will lead to better core profitability going ahead. In its life ins. Biz., given that 70% of its biz. comes from tier 3&4 cities, NBAP margins will likely come down to 18.5% from (+20% now), but various cost saving initiatives like reducing agency manager (high fixed cost) base should enhance profitability of the life business. Also, co. is looking to increase its traditional biz. (7%) to enhance profitability. Co. looking to break even by FY11.

■ Cons. Fin. +16% RoEs target; AMC- Focus on PMS - offshore
R-Cap expects its home fin. and asset fin. biz. to yield 16-18% RoEs over medium term. On AMC, it plans to focus on the PMS and offshore biz. given the regulatory hurdles affecting the profitability of mutual fund biz. R-money (broking, the co. expects to move to variable fee structure) from flat fee) to increase yields (from 2.5bps to 3.5bps) and focus on fee based products (wealth mgmt etc). Finally, general insurance, the co. believes given the de-tariffing, RoEs have come down to 4-5%, hence non-core going ahead.

■ Stake sale in Ins. and AMC subject to regulatory approvals
Reliance Capital is looking to sell minority stakes in life insurance and asset management ventures to a strategic investor. R-Cap also likely to divest some stake in general insurance. Also, R-Cap is looking to list its life insurance venture. We believe these initiatives may lead to enhanced disclosure and also impact
valuations positively.

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