Financial services firm Reliance Capital Ltd announced a net profit of Rs131.5 crore for the December quarter, a growth of 11% year-on-year. In the September quarter, net profits had been Rs229.4 crore.
But total operating income of Rs1,573 crore in the December quarter was much higher than the September quarter’s Rs1,313 crore, which indicates that margins are under pressure.
That’s no surprise. With Reliance Capital’s close connection to capital markets and the turbulent liquidity environment of the last quarter, analysts had anticipated a slowdown in the company’s growth.
Do the results reflect those fears? Assets under management of the mutual fund fell from Rs79,181 crore at the end of September to Rs70,230 crore at the end of December. The management, however, points out they have gained market share.
The number of investors declined and Reliance Capital Asset Management Ltd’s net profits fell during the quarter. Reliance Life Insurance Co. Ltd’s new business income premium, too, was lower in the December quarter compared with the previous one. The number of agents has come down as the company got rid of non-performers.
As for Reliance General Insurance Ltd, analysts say the business has gone back into the red despite having made a profit in the September quarter. But Reliance Money Ltd improved its profit compared with the previous quarter, thanks to businesses such as money-changing, money transfer and sale of gold and silver coins.
Given the adverse environment, Reliance Capital brought down its loan book in Reliance Consumer Finance to Rs8,902 crore, compared with Rs9,513 crore as at end-September. The management said provisions have substantially increased, especially in the personal loan book.
But cost of funds has since come down and the management hopes that net interest margin will go back to the 3.5-4% levels this quarter. However, profits during the quarter for this division were Rs14.6 crore, compared with Rs20.9 crore for the first six months of the year.
Nevertheless, at 0.6%, net non-performing assets, or NPAs, are still low, although provisions have gone up substantially. Provisions now cover 62% of bad loans.
The management has said that the total size of the company’s capital is around Rs5,950 crore—Rs1,800 crore of listed equity, Rs450 crore of unlisted equity, Rs700 crore worth of government debt and Rs3,000 crore of corporate debt. At the end of September, the investment portfolio was Rs7,287 crore. In the December quarter, profit on sale of investments was Rs205 crore.
The company’s debt-equity ratio is at 1.8, the same level as at end-September. The company management said it will need Rs70 crore a month as capital for the insurance business, provided growth rates remain the same.
Given these results, it’s no surprise the stock has been severely underperforming the BSE Bankex index on the Bombay Stock Exchange.
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