Reliance Capital Equity Research

Date of Research – 20 January 2016

Price – Rs. 366.35

About the Company

Reliance Capital Limited (“Reliance Capital” or the “Company”) was incorporated in the year 1986 at Ahmedabad in Gujarat as Reliance Capital & Finance Trust Limited. The name of the Company was changed to its present name on January 5, 1995. In 2006, Reliance Capital Ventures Limited merged with Reliance Capital and with this merger the shareholder base of the Company rose from 0.15 million shareholders to 1.3 million.

The Company is amongst the most valuable financial services companies in the Indian private sector. The Company operates in diversified services including asset management, mutual funds, insurance, commercial finance, investment banking, wealth management services, and other related activities in the financial services sector.

In February 2012, the Company, through its wholly owned subsidiary Sun International (South Africa) Limited, acquired additional interest in Real Africa Holdings Ltd, increasing its ownership to 99 %. Reliance Capital had a net worth of Rs. 11,991 Cr. (US$ 2.2 billion) and total assets of Rs. 40,588 Cr. (US$ 7.5 billion) as on March 31, 2013.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations7,470.007,455.008,787.009,941.00 17,507.00 
Expenses4,290.004,135.004,920.005,375.00  12,917.00  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)3,180.003,320.003,867.004,566.00  4,590.00  
Depreciation56.0061.0068.0070.00  116.00  
Finance Costs2,343.002,501.002,642.002,821.00  3,068.00  
Other income49.0089.0074.0057.00  133.00  
PBT830.00847.001,231.001,732.00  1,539.00  
Tax127.00164.00224.00379.00  293.00  
Extraordinary items(45.00)– – 
PAT (before Minority Interest and share of Associates)703.00683.001,052.001,353.00  1,246.00  
Profit/ (loss) attributable to Minority Interest62.0097.00130.00164.00  162.00  
Share of profit / (loss) of Associates(171.00)(161.00)(79.00)88.00  (2.00) 
Consolidated Profit / (Loss) for the year812.00747.001,001.001,101.00  1,086.00  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Operating Profit Margin Ratio42.5744.5344.0145.93  26.22
Net Profit Margin Ratio9.419.1611.9713.61  7.12 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital246.00246.00244.00253.00253.00 
Reserves & Surplus11,522.0011,725.0012,147.0013,071.0013,890.00 
Net worth (shareholders funds)11,768.0011,971.0012,391.0013,324.0014,143.00 
Minority Interest131.00516.00544.00669.001,448.00 
Long term borrowings11,926.0013,686.0014,178.0016,697.0018,057.00 
Current liabilities11,476.0014,353.0018,275.0016,555.0019,764.00 
Other long term liabilities and provisions42.0062.00140.00195.0013,700.00 
Total Liabilities35,343.0040,588.0045,528.0047,440.0067,112.00 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets281.00439.00483.00532.005,515.00 
Noncurrent Investments13,055.0013,560.0014,137.0013,413.0020,736.00 
Current assets9,686.0012,281.0013,361.0015,403.0017,118.00 
Long term advances and other noncurrent assets718.3114,274.0017,518.0018,057.0023,704.00 
Deferred Tax Assets45.0034.0029.0035.0039.00 
Total assets35,343.0040,588.0045,528.0047,440.0067,112.00 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW2.806.786.037.519.57 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)7,470.007,455.008,787.009,941.0017,507.00 
Growth (%)13.58 %(0.20 %)17.87 %13.13 %76.11 % 
PAT (Rs. Cr.)703.00683.001,052.001,353.001,246.00
Growth (%)113.35 %(2.84 %)54.03 %28.61 %(7.91 %)
Earnings Per Share – Basic (Rs. )33.0530.3840.6943.5642.99 
Earning Per Share – Diluted (Rs. )33.0530.3840.6943.5642.99 
Price to Earnings9.4611.499.718.4512.78

Dividend History

The Company has maintained an average dividend yield of 2.38 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Reliance Capital’s average current ratio over the last 5 financial years has been 0.82 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Reliance Capital’s average long term debt to equity ratio over the last 5 financial years has been 1.18 times, a high long term debt to equity ratio is normal for a company which is primarily engaged in the business of finance and lending.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Reliance Capital’s average interest coverage ratio over the last 5 financial years has been 1.31 times which is optimal for a company which is in the finance and lending.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Reliance Capital reported a promoter holding of 52.31 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 27.67 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.