Buy Reliance Capital; target of Rs 525: ICICI Direct
ICICI Direct’s research report on Reliance Capital
Reliance Capital reported slightly disappointing results as even with operational businesses being good, the pressure of related group accounts seems to have led to significantly higher ECL provisions (Rs 442 crore) and MTM on fair value of investments (Rs 216) crore in last Q1. Networth adjustment also appears to be on the higher side at ~Rs 5000-6000 crore at least from FY18 base of Rs16600 crore. Though networth erosion is there led by expected credit loss provisions on group exposures, the market was anyways discounting those exposures from the overall valuation of the company It reported Q1FY19 PAT of Rs 271 crore vs. loss of Rs 378 crore in Q1FY18 (adjusted for Ind-As in both quarters). Total revenue came in line with estimate at Rs 4641 crore, up 4% YoY Funds received from IPO of the gaming company internationally (Rs 1100 crore) & sale of Yatra stake (Rs 150 crore) led to debt reduction.
We revised PAT estimates lower to grow at 8% CAGR in FY18-20E to Rs 1525 crore. We expect RoE to improve to 12.5% in FY19E with improving RoE of individual businesses and lower networth. Accordingly, we revise downwards the stock valuation to Rs 525 per share on an SoTP basis (Rs 660 earlier). We factor Rs 200 per share cut towards group exposures. We maintain our BUY rating on the stock.
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