Reliance Capital – Liquidity crisis reduced consumer financing

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Reliance Capital held its conference call on 20th January 2009 to discuss the company’s performance for nine months ended December 2008.

Highlights

  • RCL’s consolidated income from operations for the quarter ended December 31, 2008 increased to Rs 15.7 billion (US $ 323 million) from Rs 11.6 billion in the corresponding period previous year, registering a growth of 36%.
  • Interest & finance charges for the quarter were Rs. 3.7 billion (US $ 76 million) as against Rs. 1.3 billion in the corresponding period previous year, an increase of 185%. The increase was due to the increased borrowings for funding the consumer finance business and cost of borrowings.
  • Profit after tax, minority interest and share of profit of associates for the nine months ended December 31, 2008 was Rs. 7.0 billion (US$ 158 million) as against Rs. 6.4 billion in the previous year, an increase of 9%

Balance sheet

  • As on December 31, 2008, the company had total assets of Rs 223 billion (US$ 4.6 billion) and a net worth of Rs. 73 billion (US$ 1.5 billion).
  • The company had a debt of Rs 130 billion (US$ 2.7 billion) as on December 31, 2008 and equity of Rs. 74 billion (US$ 1.5 billion), resulting to net debt to equity ratio of 1.8.

Reliance Capital Asset Management

Reliance Mutual Fund

  • Reliance Mutual Fund (RMF) has maintained its leadership position in the country. It further cemented its leadership position by increasing its market share to 16.7% at the end of December 2008 as against the market share of the second largest player being only 11.1%
  • The AUM as at December 31, 2008 was at Rs. 702.3 billion (US$ 14.5 billion) from Rs. 789.1 billion at the end of December 31, 2007, a decrease of 11%. During the same period, the AUM of the entire Indian mutual fund industry went from Rs. 5.5 trillion to Rs. 4.2 trillion (US$ 86.9 billion), a decrease of 23%. (Source: AMFI website).
  • The number of investors in RMF increased to 7.1 million as at the end of December 31, 2008 as against 4.4 million investors at the end of December 31, 2007. As on December 31, 2008, there were a total of 38 schemes – 16 equity oriented schemes, 20 debts oriented schemes and 2 exchange traded schemes
  • RCAM further expanded its presence during FY09. It established its presence in 415 locations as against 279 of at the end of March 31, 2008.
  • The number of Systematic Investment Plan Investors has crossed 1 million
  • RCAM received approval from Malaysian Authorities to start operations in Malaysia. RCAM is looking to start a Shariah compliant fund based on the Islamic principles. RCAM also received approval from Financial Services Authority in United Kingdom to commence investment advisory operations in United Kingdom.

Portfolio Management Services

  • The AUM as at end of December 31, 2008 increased to Rs. 273.3 billion (US$ 5.6 billion) from Rs. 33.5 billion as at December 31, 2007.
  • A hugely prestigious account, EPFO has entrusted Rs.244.3 billon (US$ 5 billion) to RAMC, to begin with, for investment management. The current corpus of the account is Rs. 2.4 trillion (US$ 49 billion).

Reliance Asset Management (Singapore) Pte Ltd.

  • Its AUM as on December 31, 2008 stood at US$ 244 million (including un-drawn amount of US$ 92 million) as against US$ 282 million as on December, 2007.

Operational Results

  • RCAM’s income from its operations for the quarter ended December 31, 2008 was at Rs. 915 million (US $ 187 million) from Rs. 1,231 million in the corresponding period previous year. This was largely due to the decline in the average assets under management of the mutual fund, portfolio management services and offshore funds during this period.
  • Profit after tax for the period ended December 31, 2008 was Rs. 257 million (US$ 53 million) as against Rs. 189 million in the previous year, an increase of 36%.
  • Staff costs for the quarter ended December 31, 2008 were Rs. 256 million (US$ 53 million) as against Rs. 294 million in the corresponding period previous year, a decrease of 13% largely due to lower incentives and performance bonuses.

Reliance Life Insurance

  • New Business Premium Income was Rs 8.3 billion (US$ 170 million) for the quarter as against Rs 7.4 billion in the corresponding previous period, an increase of 13%, against a flat premium growth reported by the industry.
  • Total numbers of policies in force as on December 31, 2008 were 2,559,482 as against 989,737 as on December 31, 2007. An increase of 159%
  • The distribution network has been increased to 1,145 branches at the end of December 31, 2008 against 736 branches at the end of December 31, 2007
  • The numbers of agents at the end of December 31, 2008 were 142,843 as against 157,080 in the previous period a decrease of 9%. During the quarter approximately 50,000 agents were discontinued due to low productivity. We had recruited approximately 92,000 agents in the calendar year 2008. The company has recruited almost 1100 agents who are waiting for license still.
  • The policyholders’ funds under management were at Rs. 45.0 billion (US$ 929 million) as on December 31, 2008 against Rs. 28.6 billion as on December 31, 2007
  • The capital infused in this business for the quarter ended December 31, 2008 was Rs. 3.3 billion taking the total capital infused till date to Rs. 25.3 billion. The company plans to infuse maximum of Rs 700 million per month depending on the market conditions.
  • The new business achieved profit for nine months ended December 31, 2008 was Rs. 4,147 million. The new business achieved profit margin (NBAP) for nine months ended December 31, 2008 was 18.81%.

Reliance General Insurance

  • RGI is one of the top three private sector General insurance companies in India (in terms of business premium). It has a market share of 6.5% of the general insurance market in India
  • Gross Written Premium for the quarter ended December 31, 2008 was Rs 5.1 billion (US$ 105 million) as against Rs. 5.8 billion in the corresponding previous period. The pace of growth was deliberately slowed down in order to focus on improving profitability
  • Net Written Premium for the quarter ended December 31, 2008 was Rs 4.2 billion (US$ 86 million)as against Rs. 2.5 billion in the corresponding previous period, an increase of 70% translating to an improvement in the retention ratio from 43% to 83%. As a result of this, the combined ratio has improved from 129% in FY08 to 114% for Q3 FY09
  • The distribution network composed of 200 branches and over 7,800 intermediaries at the end of December 31, 2008.

Reliance Money

  • In less than 2 years, Reliance Money has emerged to become the largest brokerage and distributor of financial products in India with around 3 million customers and the largest distribution network of 10,392 outlets in 5,165 locations
  • Reliance Money generated revenues of Rs. 1 billion (US$ 21 million) for the quarter ended December 31, 2008 as against Rs. 640 million of the corresponding previous period, an increase of 60%. For the same period, it achieved a net profit of Rs. 220 million (US$ 5 million) as against Rs. 48 million – an increase of 356%
  • The revenue mix is well balanced with broking contributing to 48% of the total revenues and distribution of financial products & other services (money transfer, currency changing & precious metal retailing) contribute to the balance 52%
  • In broking business almost 90% comes from retail and remaining 10% from HNI, corporate and other Institutions.
  • To further improve its position in the money changing and money transfer business, Reliance Money has acquired a significant share holding in Wall Street Finance Ltd, a leading provider of money changing and money transfer services in the Country
  • Reliance Money has tied up with India Post and World Gold Council to sell gold coins through the entire post office network of around 155,000 offices across the country
  • It has also obtained approval from the Ministry of Consumer Affairs for acquiring 10% stake in the National Multi-Commodity Exchange of India Ltd. (NMCE). Reliance Money proposes to acquire a total of upto 26 per cent stake in NMCE in two phases
  • Reliance Money has established its presence in the Middle East, Malaysia, Hong Kong, Nigeria and Ireland

Reliance Consumer Finance

  • Reliance Consumer Finance business reduced further disbursals due to the liquidity crisis, high cost of borrowing and higher risk perception. The incremental cost of borrowing went up from approximately 11% to 14-15% impacting the normal economics of the business and the financial performance. The average cost of funding for the quarter went up to 11.4% from 8.5%
  • Reliance Consumer Finance generated revenues of Rs. 3.2 billion (US$ 66 million) for the quarter ended December 31, 2008, as against Rs. 1.4 billion for the corresponding previous period, an increase of 134%. This was due to increase in the loan book to Rs. 89.0 billion (US$ 1.8 billion) from Rs. 38.7 billion as on December 31, 2007
  • The provisioning till date is Rs. 1 billion i.e. 1.2% of the outstanding loan book. This took the overall provisions of the company high.
  • The NIM of the business has reduced from 4.6% as on Q2FY09 to 4% in Q3FY09. This was largely due to the cost of funds going high during the quarter by 3%. Now with the cost reducing, the company is confident in maintaining the NIM at 3.5-4% levels in coming quarter.
  • The Net NPA stands at 0.6% as on December’08 with the coverage ratio standing at 62%.
  • Reliance Consumer Finance business has been allocated equity of Rs 12000 million.
  • Average duration of Mortgage loan is 7-8 years and other loans is 20-22 months. The Average duration of liability is 15-16 months.
  • Reliance Capital received the approvals from RBI and National Housing Bank to set up separate subsidiaries for consumer finance and home finance respectively

Reliance Asset Reconstruction

  • Reliance Asset Reconstruction, which is in the business of acquisition, management and resolution of distressed debt/assets, formally commenced business operations in the 1st half of FY 09 by acquiring Non performing assets (NPAs) from Corporation Bank and Arcil at an aggregate consideration of Rs 31.7 million (US$ 0.6 million). The assets have since been resolved
  • Further, in December 2008, Reliance ARC made an offer to Dena Bank to acquire 2 NPAs for an aggregate consideration of Rs 21.5 million (US$ 0.4 million). The asset will come into the books of the Trust floated by Reliance ARC during Q4 FY09

Reliance Equities International

  • Reliance Equities International Private Limited (REIPL) is the institutional stock broking subsidiary of Reliance Capital. REIPL has been set up to complement Reliance Capital’s current financial services businesses
  • Reliance Equities started business in August 2008.It aims to add value to clients investment decision making process with thematic and differentiated research, access to corporate managements and lateral input providers and the highest standards of client servicing.
  • This business generated Rs 130 million from its inception till December’08 and is expected to touch Rs 15-16 million by end of FY09.

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