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Reliance Capital’s earnings: many hits and some misses

An economic turnaround, improved outlook for insurance business needed for the stock to sustain gains
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First Published: Tue, Jan 29 2013. 07 16 PM IST
The provision towards the motor pool reserves and another `200 crore provisions towards investments in the second quarter should see profitability improve. Photo: Abhijit Bhatlekar/Mint
The provision towards the motor pool reserves and another Rs.200 crore provisions towards investments in the second quarter should see profitability improve. Photo: Abhijit Bhatlekar/Mint
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Updated: Tue, Jan 29 2013. 10 57 PM IST
Reliance Capital Ltd has posted an increase in profit for the fourth straight quarter in the three months ended December, but the life insurance business is still hostage to concerns. The stock has lost some of the gains it made in September as the promises of reforms in this industry are yet to materialise.
For now, the effects of the rule changes in this sector made in 2010 are still playing out. In the December quarter, total premium collections fell 21% from a year ago, the same rate as in the three months ended September. The fall in renewal premium was more at 24%, the effect of slipping premia collections in the past couple of years.
Still, Reliance made profits in this business; profit before tax increased nearly four times from a year ago, though that can be attributed to past revenues and cost-cutting measures such as slashing the employee strength.
The other main business of Reliance Capital—asset management—had a mixed quarter as well. While assets under management grew 16% from a year ago, expenses, too, almost doubled. Thus, this business reported a 17% decline in profit before tax.
The commercial finance business of Reliance Capital continues to grow; albeit at a slower pace. Disbursements grew at 16% from a year ago in the three months ended December, compared with 34% growth in the September quarter. The firm’s loan book has also shown a slight dip at the end of December, an effect of the general economic sluggishness.
However, it has managed to improve its net interest margin by 20 basis points to 4.2%; thus, its profit before tax grew 29% from a year ago. But one point to be noted here is the increasing level of stressed assets. Gross non-performing assets as a proportion of the loan book increased to 1.9% at the end of the December quarter compared with 1.6% three months earlier.
Among other businesses, the general insurance business booked a profit. That though was expected since the company had booked Rs.100 crore towards third-party motor claims in the September quarter.
Overall, the results while positive for the company show some frayed edges. While the provision towards the motor pool reserves and another Rs.200 crore provisions towards investments in the second quarter should see profitability improve, an economic turnaround and improved outlook for the insurance business is needed for the stock to sustain the minor 17% gains it has made this fiscal.
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First Published: Tue, Jan 29 2013. 07 16 PM IST
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