SSKI - Reliance Capital

Reliance Capital (RCL) has arrived with a bang! Number 1 in the domestic asset management business, around 4x growth in market share in both life and general insurance in 18 months and a 1% share in broking business in three months assert the efficacy of the Reliance brand and its aggression. RCL offers the best vehicle to play India's fast expanding non-bank financial services market. The recipe for success is there.....strong capitalization with backing of a USD 38bn group, a plan to build one of India's finest distribution platforms and a sponsor with ability to swing deals at enviable valuations make RCL one of the best bets in the space. Though the stock has returned 72% in the past six months, the price does not discount RCL's blazing growth and its emergence as a formidable force. We believe the party has just begun; initiating coverage with an 18-month price target of Rs1,929.



Fingers in every growing pie: Insurance, asset management, broking and wealth management are the key high-growth sectors riding India's amazing demographic changes. RCL has made its mark in all the segments in a short period of time. RCL has an aggressive management team with relevant sector experience and proven track record to methodically execute its growth plan.

Building blocks in place: RCL has got the two key ingredients for success in the space; capital and distribution. A net worth of Rs53bn as also its pedigree (part of the ADA Group, India's fourth largest business house by market capitalization) impart significant leverage to RCL. Recognizing the importance of a vast distribution reach for the business, RCL is aptly ramping up its footprint across businesses. In the next 3-4 years, we see RCL having one of the largest networks of customer touch points.

The whole cake is mine: RCL owns 100% economic interest in its businesses, which would enable it to capture their full value. The sponsors have chosen to utilize the expertise within the country and consciously avoid partnerships with global majors (which have extracted disproportionate value from other local insurance players). We have valued RCL on sum-of-parts (FY10) basis as we believe the key businesses - life insurance and general insurance - will continue to outgrow private sector peers over the period. Our 18-month price target of Rs1,929 per share offers 70% upside.