>RELIANCE CAPITAL: Q1 FY 11 result performance

During the quarter ended June 2010 reliance Capital posted a consolidated total Income of Rs 12.6 billion which was down by 13.7% on Y –o- Y basis and down by 26% on Q –o- Q basis. The total income was down due to lower capital gains and reduction in topline of general insurance business. The company posted a net profit of Rs 770 million which is drastically down by 49% on Y –o- Y basis but is up by 19.4% on Q –o- Q basis. The profit was down due to fall in AUM and loss in insurance business.

Strong contender for banking licence
Reliance capital is interested in banking license for quite some time. The finance minister in the budget has announced to give new banking licence. Reliance capital is currently a key contender for the banking license, as it will be source of low cost funds which is key requirement for the growth of business.

Strengthening broking business
Reliance capital's subsidiary 'Reliance securities' is looking to increase its employees strength to 1,400 from 800 at present, the company is also targeting to reach 10,000 franchisees in next 2 years. The company having a customer base of 6,50,000 is planning to invest around Rs 30 to Rs 40 billion in coming 2 to 3 years to improve technology and risk management capabilities, and to introduce new retail equity products, the entire spending would come from internal accruals.

India’s Largest mutual Fund
Reliance mutual fund is currently the India’s largest Mutual fund with 15% market share. Reliance Capital Asset management currently manages Rs 1.4 trillion across MF, Pension funds, managed accounts and hedge funds.

Valuation
We have done a SOTP based valuation for the company and valued the various business segment of the company on different parameters. We arrive at target price of Rs 868 for reliance capital. At current market price the stock is trading at 2.61x its FY 10 book value and at our target price it will trade at P/B multiple of 2.8x.

We recommend BUY with investment horizon of 6 to 12 months.

To read the full report: RELIANCE CAPITAL