RELIANCE CAPITAL LTD.,

1
RELIANCE CAPITAL LTD.,

• We recommend Buy with a price target of
  3000-3600.
• Buying levels 2200-2350.
• The scrip has consolidated at 2200 levels and
  has
• formed a double bottom at that level. so strong
  buy
• at these levels and in every dip .
• The scrip has formed a double top at 2400 level
• if crosses the level will attain the target.

2
Company Outlook

• Reliance Capital (RCAP), a non banking financial
  company, is the financial service arm of the Anil
  Dhirubhai Ambani Group (ADAG) which has varied
  interests in areas like telecom, energy,
  entertainment. Reliance Capital is one of India's
  leading and fastest growing private sector
  financial services companies and ranks among the
  top 3 private sector financial services and
  banking companies, in terms of net worth. Through
  the companys subsidiaries, it offers products
  and services like mutual fund, life insurance and
  general insurance. It has sizable private equity
  and proprietary investments and is pursuing new
  ventures like stock broking, consumer financing
  and the asset recovery business as well. Reliance
  Capital, initially focused on the asset
  management business, has recently expanded its
  presence in life insurance, general insurance
  space and ebroking business as well. Reliance
  Capital launched Reliance Money, a retail broking
  and distributor of a range of financial service
  products. It has a network of over 2,200 outlets
  (Indias largest retail network by a non banking
  financial services company). Reliance Capital has
  100 economic interest in all the business units.

3
(No Transcript)
4
Valuation Summary
SECTOR OVERVIEW Indias recent economic growth
has been led by the dynamism of its services
sector particularly the high-end,
knowledge-intensive services. Service sector has
been consistently growing at a faster pace than
the economy since the liberalisation of the
economy took place in 1991. According to the
economic survey of 2007, the services sector
contributes to nearly 55 per cent of Indias
GDP. The financial sector consists of banking,
insurance, consumer finance, NBFCs. According to
Indian Brand Equity Foundation (IBEF), the
financial sector contributed around 5 of the
GDP in FY 2007. Indias banking and insurance
sectors have been significantly opened to private
sector since 1993 and 2000 respectively. With the
deregulation of the Mutual fund industry as well
in 1993, the sector has seen a spate of new
private and foreign players.
5
BANKING The scenario in the Indian banking
industry is changing rapidly. Traditionally, it
was characterised by poor performing public
sector banks which employed outdated practices
and technology. The liberalisation process
resulted in the number of private sector
scheduled commercial banks increasing to 61,
including 31 foreign banks. Private sector banks
had increased their share of total assets to 24.7
per cent and foreign banks to 6.6 per cent share.
By September 2004, the total number of foreign
bank branches in India was 217. The penetration
of banking services and products in rural India
is particularly low, with only 42 per cent of
rural households having bank accounts of which 21
per cent having access to credit from a formal
source and only one percent relying on a loan
from a financial intermediary. Improved access to
banking products would greatly benefit rural
businesses and households, and help to raise
living standards across the rural sector as a
whole.
6
INSURANCE Indias insurance sector, like its
banking system, has an important role to play in
enhancing financial intermediation, creating
liquidity and mobilising savings in the economy.
The opening of the life and non-life insurance
sectors to foreign investment in the year 2000
spurred increased activity by foreign investors.
In spite of the growing awareness of insurance
products, the penetration of the Industry is
abysmally low at 2.5 as compared to the matured
markets. This would augur well for the growth of
Insurance sector. In the life insurance sector,
there are currently 15 private insurers plus the
government-owned Life Insurance Corporation
(LIC). According to the Insurance Regulatory and
Development Authority (IRDA), first year (i.e.
new business) premium income of the private
insurers for 200607 was Rs 19, 500 Crs. In the
space of just six years from FY 2002, private
insurers have secured a 26 per cent share in new
business segment.
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
VALUATION
11
(No Transcript)
12
VALUATION
APE (Annualised Premium Equivalents) is sum of
FYP and 10 of Single Premium Valuation-NBAP
Multiple We believe that Reliance Life Insurance
will be among the top players in this segment by
year 2008 due to its reach and the growth rates
shown in the previous years. Its reach will help
to penetrate the under-penetrated markets. Due to
its focus on distribution and its rapid
scaling-up plans we believe the FYPs should grow
by 150 in FY08 and in the subsequent year a
growth rate of 85. Single Premiums should grow
by 60 in FY08 and 50 in FY09.The NBAP multiple
is expected to increase from 22 to 25 in FY09.
13
LIFE INSURANCE
Currently around 80 of the countries population
is without a life insurance policy. With the
economy booming, the disposable incomes are set
to increase which will increase the number of
policy holders dramatically. Life
insurance industry recorded a growth of 110 in
premium collection FY07. Reliance life
Insurance (RLI) is the fastest growing insurance
company in India with a market share of 4
amongst private insurers. The AUM is Rs. 12 bn.
It already has a reach of 217 branches and may
scale up to 400 by FY08 .Its agent force would
increase to nearly 2, 00,000 agents in FY 2008 up
from 1, 06,000 agents in FY 2007. Reliance Life
grew by 381 in FY07. Reliance expects its growth
from rural areas. It will need a capex of around
1200-1500 crs for this segment of the business.
Of the total premium earned, 88 is from ULIP
plans and 12 from others. This trend is likely
to be seen in the future years as well.
Currently banks are allowed to sell insurance
policies of only one Insurance Company. Banks
have a tie up with the insurance company for a
period of three years. Since Reliance Capital is
a late entrant in this business it does not have
a tie up with any of the banks to sell its
insurance products. However, it has the
opportunity to enter into contracts with banks as
and when they come up for renewal after a period
of every three years.
14
VALUATION
15
GENERAL INSURANCE
As per industry estimates penetration (as a
percentage of GDP) of general insurance in India
has improved marginally from 0.53 to 0.64 over
the 5 year period FY 2003-07. General insurance
industry in India has grown at 15 CAGR in the
past five years in terms of gross premium
collection. Given the low penetration of general
insurance and a CAGR of 22 , Reliance General
Insurance is expected to cash in on these
opportunities. Reliance General Insurance (RGI)
is the fastest growing general insurance company
and the 4th largest in India with a market share
of 10 amongst private general Insurers. In
FY07, the General Insurance business posted a
growth of 22, driven by private players
phenomenal growth of 60. Reliance General
Insurance has improved its retention ratio from a
35 in FY 06 to 55 in FY 07. The retail segment
accounts for 55 of Reliances General Insurance
business. There was a marked shift towards motor
insurance, which accounted for a whopping 50 of
all retail business. Reliance General Insurance
has expanded its distribution network to 85
branches and regional offices in FY 2007 from 34
branches and regional
16
GENERAL INSURANCE
17
BUSINESS UNIT VALUATION
18
Disclaimer This report has been
prepared solely for information purposes and the
information contained herein may not be deemed to
be an investment advice. Such information is
impersonal and not tailored to the investment
needs of any specific person. The information
contained herein is not a complete analysis of
every material fact representing any company,
industry or security. The views expressed may
change. While the information contained herein
has been obtained from sources believed to be
reliable, no responsibility (or liability) is
accepted for the accuracy of its contents.
Investors are advised to satisfy themselves
before making any investments and should consult
with and rely upon their own advisors whether and
how to use such information in making any
investment decision. Neither the author nor his
firm accepts any liability arising out of use of
the above information/ article. This report is
exclusively for the clients of Venkataraman Co.
only. VENKATARAMAN CO., Stock Share
Brokers, New No.2 (Old No.52) Dr. Ranga Road,
Mylapore, Chennai 600 004. Web www.venkataraman
.com E-mail vnkco_at_vsnl.com