BackReliance Capital Q1 net profit triples to `133 crore
Company’s revenue rises 16% to `1,938 crore as its major business segments report gains
Premium(Abhijit Bhatlekar/Mint)
Reliance Capital Ltd, the financial services firm of the Anil Ambani-led Reliance Group, said fiscal first quarter profit almost tripled to ₹ 133 crore, beating analysts’ estimates, as all its major businesses—asset management, life and general insurance and commercial finance—reported gains for the first time.
The non-banking financial company, one of the contenders to secure a banking licence, saw revenue rise 16% to ₹ 1,938 crore in the quarter ended 30 June from a year ago, .
A Bloomberg survey of Reliance Capital’s earnings estimates had pegged revenue at ₹ 1,275 crore and profit at ₹ 86.83 crore.
The company attributed the growth in revenue to the “increase in topline of general insurance and asset management businesses".
The life insurance business saw profit almost triple from a year ago to ₹ 56 crore while general insurance turned in a profit of ₹ 10 crore from a loss of ₹ 20 crore in the year earlier. The commercial finance business saw profit rise 25% to ₹ 83 crore while the mutual funds business reported a profit of ₹ 77 crore, up 32% from a year ago.
The company’s stock fell 2.76% to ₹ 360.85 on BSE on Monday. The bourse’s benchmark Sensex shed 0.78% to close at 19,593.28 points. The earnings were announced during market hours.
While Reliance Capital has traditionally done well in businesses such as asset management, the going has not been easy in other businesses such as general insurance and commercial finance.
“There have been conscious efforts to rejig strategy wherever necessary to bring those businesses into profits," said Sam Ghosh, chief executive officer.
Reliance Capital suffered from rising claims in the general insurance business, mainly from its health and motor insurance portfolios. It was also affected by higher provisioning requirements for the motor third party insurance pool (which impacted other motor insurers in the market as well), prompting Reliance Capital to reduce the share of motor insurance in its portfolio to 58%, from as high as 80% earlier.
This share will further come down to 55%, chief executive Ghosh said.
The economic slowdown beginning in 2007-08 had also led to an increase in bad or doubtful loans in the company’s commercial finance division, but now its entire commercial finance portfolio is secured.
It also hired 13,000 new agents between April and June who have helped it get new business, and the average ticket size per policy holder has increased from ₹ 14,000-15,000 earlier to ₹ 17,000, said Ghosh. This resulted in the company more than doubling its new business premium from the life insurance business to ₹ 514 crore in the June quarter.
Santosh Singh, an analyst with Espirito Santo Securities in Mumbai, said growth in new business premium in the life insurance business stands out in Reliance Capital Ltd’s earnings. “This has come at a time when the overall market hasn’t been doing well and overall new business premium has come down by 5-6%," Singh said, adding, “This has helped Reliance Life Insurance improve its market share from around 5.5% earlier to around 10.5%."
S.P. Tulsian, an independent stock market analyst based in Mumbai, said that despite deploying a lion’s share of capital in the corporate lending and investments business, the company managed to earn an operating profit of only ₹ 8 crore from such activities in the June quarter. In fact, during the same period last year, the company had reported an operating loss of ₹ 10 crore from the same segment.
Reliance Capital should deploy capital in businesses where there is greater visibility of regular income rather than use it for finance and investments, where there is no certainty, Tulsian said.
Ghosh said that at the end of 30 June, Reliance Capital had investments of around ₹ 5,000 crore, which the company will gradually liquidate over the next 18 months and utilize the proceeds to repay debt. It has a net debt of around ₹ 17,000 crore, Ghosh said.
One of the reasons for selling the investments is that the company wants to be in conformity with the Reserve Bank of India’s guidelines for being eligible for a banking licence.
aveek.d@livemint.com
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