Reliance Capital Ltd
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Reliance Capital Ltd
NSE:RELCAPITAL
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Earnings Call Transcript
Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to Reliance Capital Limited Q3 FY '18 Earnings Conference Call hosted by Reliance Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Asutosh Kumar Mishra from Reliance Securities. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and welcome to Reliance Capital 3Q FY '18 Earnings Conference Call. Today, we have with us Mr. Anmol Ambani, ED, Reliance Capital, along with the entire senior management team, to discuss 3Q FY '18 earnings and strategies going forward. So over to you, Anmol.
Good morning to all of you, and welcome to our Q3 FY '18 Conference Call. We have the CEOs from our businesses with us: Sundeep Sikka from the Asset Management business; Devang Mody from Reliance Commercial Finance; Ravindra Sudhalkar from Home Finance; Rakesh Jain from General Insurance; Ashish Vohra from Reliance Nippon Life Insurance; and Gopkumar from the Broking and Distribution segment; as well as Reliance Capital CFO, Amit Bapna.I'm delighted to report that the total income for the quarter increased by 20% to INR 48 billion, and profit rose by 50% to INR 3.1 billion. In terms of operating performance, all businesses have achieved significant growth in top line and a strong improvement in profitability. We completed the successful listing of Reliance Nippon Life Asset Management on November 6, 2017 and raised over INR 15 billion in primary and secondary proceeds. Post listing, the company declared an immediate interim dividend of INR 5 per share in January 2018.Now we will present a brief update on our core businesses performance, beginning with Sundeep Sikka from Reliance Nippon Life Asset Management.
Thanks, Anmol. The mutual fund industry has maintained the strong growth momentum in this quarter as the industry average AUM reached a record high of INR 22 trillion. In this context, I'm very happy to share Reliance Nippon Life Asset Management is India's largest asset manager, with INR 3.9 trillion of assets under management, which is an increase of 17%. The total number of systematic investment plan folios rose to 2.3 million, resulting in an annualized SIP inflows of INR 78 billion. Reliance Mutual Funds continues to focus on high-yielding assets. As a result, share of our equity assets rose from 27% to 34% for the quarter ended December 31, 2017. As on December 2017, Reliance mutual funds AUM sourced from outside the top 15 cities increased by 34% to INR 508 billion. Post demonetization, Reliance Mutual Funds has added highest retail assets of 27 -- 271 billion. Currently, it manages overall retail assets of 710 billion, amongst the highest in the industry. Digital purchases has also doubled to approximately 625,000 for the period ended December 31. RNAM has 19.3% market share in the ETF space with an AUM of INR 132 billion for the quarter ended December 31, 2017. RNAM manages 16 ETFs across all asset classes. For the quarter ended December 31, 2017, RNAM's total income increased by 31% to INR 4.7 billion. Profit before tax rose by 23% to INR 1.9 billion in the quarter -- in quarter 3 FY '18. Return on equity was at 24% in quarter 3 FY '18. I would like -- I would now like to invite Devang Mody from Reliance Commercial Finance for his comments.
Good morning, everybody. In last quarter, we have rebranded Reliance Commercial Finance Limited which continues to remain as legal entity. The customer-facing brand, we have rebranded to Reliance Money. This reflects our transforming the company into diversified new age financial solution provider, both in SME as well as retail space. The asset under management for the quarter grew by 5% to INR 170 billion, while the outstanding loan book rose by 15% to INR 140 billion. The total income for the quarter increased by 20% to INR 6 billion, excluding exceptional impact of the merger. Profit before tax remained stable at INR 983 million as compared to quarter 3 FY '17. The net interest margin improved from 5.4% to 5.8% in quarter 3 FY '18. As on December 2017, the gross NPA improved significantly to 3.6% against 4.1% in September 2017. We continue to recognize NPA at 90 days basis. The coverage ratio, including write-offs at the end of the December 2017 stood at 51%. Excluding write-off, the ratio was 20%. As discussed in last quarter, we continued to make strong progress towards rebalancing the portfolio in line with our long-term growth strategy. Along with good traction in SME book, we took a significant step into our retail lending foray and initiated lending in Two Wheeler, personal loan and in used car segments in Q3. Disbursement in this segment starts -- to INR 550 million in the quarter. We expect to rapidly expand in retail segment and create significant presence in retail segment over the period of coming quarters. I would now invite Ravindra Sudhalkar from Reliance Home Finance for his comments.
Thanks, Devang. Reliance Home Finance is in the business of home loans, including the affordable segment, loan against property and construction funding. In quarter 3 of FY '18, the assets under management grew by 54% to INR 149 billion. During the same period, the disbursements increased by 35% to INR 16 billion. 51% of the assets under management were contributed by the home loans and the affordable home loan segments. 72% of the home loan disbursements catered to the self-employed segment. The total income for the quarter increased by 56% to INR 4.2 billion. The profit before tax rose by 103% to INR 701 million. The net interest margin for the quarter after adjusting for NPA reversals rose to 3.8%. Our guidance continues to remain in the range of 3.5% as we grow our portfolio in the affordable home loan segment. The cost-to-income ratio improved from 51% in quarter 3 of FY '17 to 39%, on account of higher productivity and increased efficiency. As on December 2017, the gross NPA remained stable at 0.8% of the assets under management. The coverage ratio at the end of December 2017 stood at 47%. The company had a capital adequacy ratio of 21.5% as on December '17, with a Tier 1 ratio of 13.5%. Reliance Home Finance continues to enjoy the highest rating of A1+ for its short-term borrowing program and AA+ for its long-term borrowing program. We are operational in over 100 locations in the country through the hub-and-spoke model, and we continue to expand this footprint. I would now invite Rakesh Jain from Reliance General Insurance for his comments.
Thank you, Ravindra. The general insurance industry witnessed a strong growth of 18% in quarter 3 growing across multiple segments, primarily health and motor. Reliance General Insurance is amongst the top private sector general insurance companies in India in terms of gross premiums with a private sector market share of 8.5%. The gross written premium rose better than the industry to INR 11 billion, an increase of 26%. Also, premium from preferred segments, such as private cars, health and travel, as well as commercial lines continue to grow in line or better than the industry. Profit for the quarter increased by 54% to INR 283 million. The combined ratio improved from 132% in quarter 3 FY '17 to 109% (sic) [ 119% ] for the quarter. For the period ended December 31, 2017, the combined ratio for short-term business continue to be around 100%. The investment book increased by 17% to INR 76 billion as on December '17.For the period ended December 31, 2017, the ROE improved from 10% to 12%. The solvency ratio is maintained at 172% against a regulatory minimum of 150%. Our focus has been to improve profitability as well as our market share. The company has entered into new banca tie-ups in quarter 3 with YES Bank, taking the total of bancassurance tie-ups to 12 now. The company has registered sharp increase in online channel with 39% growth in premium collected and 36% growth in number of policies sold in the quarter. As on December 2017, we have the largest agency forces in the private sector with over 27,000 retail agents and 128 branches. Reliance General Insurance has concluded distribution tie-ups with over 20 financial institutions. Also the company has aligned itself with several automotive manufacturers. The company is under discussion for similar tie-ups to further augment its reach across the country. I would now invite Ashish Vohra from Reliance Nippon Life Insurance for his comments.
Hello, all. Good morning. I'm happy to state that the business transformation continues with Reliance Nippon Life in a very steady manner, and we received significant improvement across key metrics. The total premium and renewal premium increased by 2% each to INR 10 billion and INR 8 billion, respectively. Persistency has been an area of focus for us, and I'm happy to report that in this quarter, we've seen a sharp increase from 62% to 69% in quarter 3 FY '18. The business continues to focus on agency as its main channel, which has now increased its persistency to 71%. Continued growth in our renewal premium, along with higher persistency, demonstrates our emphasis on improving the business quality. As a conscious business strategy, we continue to remain focused on the traditional product segment, which forms 77% of individual new business premium in quarter 3 FY '18, therefore, supporting margins. Margin improvement with movement towards longer pay and high-margin products all goes well for the quarters to come. In Q3 FY '18, the business made a marginal loss of INR 147 million. Sum assured of policies in force were at INR 931 billion. There are approximately 3 million policies in force at this time. We operate through a network of approximately 750 offices and 62,000 active advisers across India. With support from better agency productivity, higher persistency and improved margins, we expect to improve the profitability and regain market share in the private sector.Total funds under management grew by 16% to INR 188 billion as of December 2017. The business employs a traditional method for calculation of embedded value. As of September 2017, the embedded value rose to INR 31.5 billion. Reliance Nippon Life Insurance successfully initiated the distribution tie-up with Bank of Maharashtra. This is the first PSU open architecture in place. And I'm happy to share that we won this mandate. We now, therefore, get an access to over 1,900 branches of Bank of Maharashtra. I would now invite Gopkumar from the Broking and Distribution segment for his comments.
Thank you, Ashish. Reliance Securities is among the leading equity broker and distributor of financial products and services in India. The number of equity accounts increased by 7% to approximately 8 lakhs 46,000. Average daily turnover in the exchange segment rose by 64% to INR 45 billion. The average daily turnover in cash equity segment rose by 61% to over INR 3 billion. Our mobile market share is at 11%. Over 95% of broking accounts are digitally opened and clients are able to trade on the same day. The number of commodity accounts rose by 38%, over 98,000, and the daily average commodity turnover rose by 5% to INR 2.7 billion. In wealth management business our assets under management stood at INR 54 billion, an increase of 51%. For the quarter, total income increased by 2% at INR 830 million. The business had a profit of INR 136 million in quarter 3 FY '18 against a profit of INR 132 million in quarter 2 FY '18. The return on equity was at 19% for the quarter. Going forward, we expect to continue the trend of profitability. Now I would like to invite Anmol for his closing remarks.
Thanks, Gop. The listing of RNAM and RHF unlocks substantial value for all stakeholders. The independent listing of Reliance General Insurance is expected to create further value for our shareholders. We are solely focused on the financial services sector and are targeting to achieve leadership position across all core businesses. We expect to improve our market ranking over the next 2 quarters as well as achieve a return on equity in the range of 15% to 18% in each of them. With those comments, we would now like to take your questions. Thank you.
[Operator Instructions] We take the first question from the line of Ashok Kumar from Unifi Capital.
Sir, I have a question on several segments, but I'll start with the commercial finance. I know that there is an improvement in the GNPA ratio from 4.1% to 3.6% on a sequential basis. But we also note that the provisions have almost doubled from let's say INR 56 crores to INR 105 crores in Q3. Were there any write-offs?
Answer is yes. We have done 2 things. We have accelerated provisioning in certain assets as well as -- as per our provisioning policy, there is an improvement in -- there is an increase in provision leading to write-off. The entire reduction in GNPA is not on account of write-off. Partially close to INR 10 crores to INR 15 crores is on account of write-off. The balance is because we are able to resolve certain accounts.
Okay. And -- but do you see this coming also as in can you share what will be the credit cost on an annualized basis going forward?
Yes. So there are 2 elements. You are -- if you are referring to credit cost, I think credit cost will hover at current level for some period. This credit cost also looks elevated because our growth has been very drastic. As you know that we are in process of rebalancing our portfolio. So close to 45% of our assets today, as on 31st March, 2017, are on rundown mode. So as we get back to growth trajectory, which is 1 quarter from now, you will see that credit cost as a percentage of AUM dropping.
Okay. And sir, what is -- what are the targets in terms of AUM which you have in mind, sir, for FY '19 and '20 now that we are at -- somewhere around INR 13,970 crores. So after 1 quarter, sir, I believe FY '19 and FY '20, we'll see some really strong growth coming in. So what are the targets?
So our long-term plan is to achieve 30-odd percent growth in our lending book over long period. So as we create capabilities and launch new businesses, the growth will start coming from next financial year.
Right, sir. Sir, and I have a few questions for the general insurance part. We see that the combined ratio has kind of increased on a sequential basis. So is there anything -- is it related to the segment-related issues? Or how does one explain this?
General insurance is a bit cyclical. It's not as sequential as we would like it to be. And most of the times, it is better to compare the quarter over the same quarter previous year. And structurally, I'll give you some reasons like first quarter is generally good because you have a lot of corporate business coming in. Second quarter generally is a monsoon quarter, so you might have a little bit of motor claims and all liabilities. So actually speaking, you should take all the quarters on an relevant quarter basis. And if you see from that aspect, we have significantly improved from quarter 3 last year, which was at 132, we have come down to 119. And the improvement, of course, is a contribution of both the claim ratio as well as the expense ratios.
Right. Sir, and can you give the breakup of the gross written premium of INR 1,075 crores, which was done in Q3?
I think it's more or less about 59% motor and about 9% health, about 8% property. And the balance is basically crop, a little bit of miscellaneous.
And can you give the same breakup for Q2, sir, wherein it was INR 1,688 crores?
I think we'll give you the details separately. I don't have it handy right now.
All right. Sir, and what is the timelines in terms of the IPO? Is it on track? When is it that we'll be able to see it?
I think we are more or less there. We have most of the approvals in place. And I think we are seeing the -- the coming months, the market conditions and all. We are good to go in a favorable environment.
Sir, and one last question. On a consolidated basis in the last call, we were told that Rel Cap's exposure to RCom subsidiaries was around INR 1,600 crores. INR 1,000 crores is funded, 500 is -- INR 600 crores is non-funded. And we were told that you will be able to realize it by March this year. So what is the status?
That's on track. We should be realizing it by March.
We take the next question from the line of Kajal Gandhi from ICICIdirect.
The numbers, in terms of -- yes, so the numbers in terms of general insurance, I wanted to understand, one was definitely -- so can you differentiate between claims ratio, how much it was, and the expense ratio? One question. And second, can we get to the investment income in the general insurance business? Has yields made any change there?
So first, on the claims ratio, I think on a quarter-on-quarter basis, as I mentioned that we were 132 combined in quarter 3 FY '17. From that, we've improved to 119 for quarter 3 FY '18. The claims ratio has moved from 89 to 86, and that's an improvement of 3%. And the expense ratio has moved from 46 to 35. Structurally, if you see the whole of -- all of 9 months, the YTD, the claims ratio has actually moved down from 91 to 85. So I think we are on course to see an improvement on a quarter-on-quarter basis. And our 9-month combined ratio is 110 as against 122 for the same period last year. So I think it's a business which continues to grow and grow behind profitable mix, and we added more tie-ups, which we have put in place. I think the mix is likely to improve further. Coming on to investments. Obviously, the yields on the fixed income has come down, but we are broadly on a -- not on a very high tenor in terms of average tenors so that because we marry the -- our liability profile and the asset division. And I think the cash flows on the investment AUM has been very strong. The investments in AUM are also up about 15% on the same quarter basis. So structurally, while we have lost a bit of these, but we have gained in terms of the positive accruals. And I think we are more or less around 7.8% in terms of the portfolio yield as we speak.
And similarly, sir, I wanted to know the life insurance impact of yield across like on the fund and on the EV?
So we've also seen somewhat of a positive movement on both the debt side and the equity side. The equity markets have obviously been favorable. Therefore, the upside that has accrued has been of a slightly better order. As you know, that does not immediately translate into an EV upside. I think we'll be sharing detailed walks on this as we close the year. So 31st of March, we will be sharing the exact impact on the EV.
Okay. Sir, but currently, if I have to understand the line item, why it's -- your total liability, it must have slightly gone up and your profit on investments which must have in part impacted, is it?
Yes, that's right.
But these are the 2 line items which got impacted, not for the ULIP per se but the other product?
Yes.
Okay, sir. And what would be the mix on your current year -- current quarterly new business?
So we are about 77% traditional and about 23% ULIPs. Within the 77% traditional, our focus is higher on the guaranteed side. So we have approximately 70% guarantees, about 7% to 8% participating, and about 22% to 23% ULIPs. That's the broad mix of our last quarter origination.
So would you be looking at guaranteed at this time?
Sorry, say it again?
Incrementally, your guaranteed products are being considered. Isn't that a risk on the book?
So the product strategy actually depends upon the target market that the company sells. Like I mentioned earlier, our target market is mostly sold through agencies. That is our biggest channel. And our distribution is actually across a wide section of India. So we are a fairly large Tier 2 and Tier 3 player. Now given the customer profile in these towns and given, therefore, the distribution strategy, the preference appears to be very sure about the investments that customers make. Therefore, guarantees still finds favor in those areas. Our product strategy in metros, so say, the top 20 cities or even the next 30 cities is somewhat different. The customer profile there is a little higher on education, it's a little higher on risk-taking, it's a little higher on income -- per capita income there. And therefore, the product profile there is somewhat different and more oriented towards ULIPs. So given the combination of the distribution strategy, guarantees continue to form a larger play. As we move into bancassurance and as, as I said, we've now commenced our tie up with Bank of Maharashtra, the customer segment that we end up talking there does have a proportion of wealth kind of customers. And the product strategy there would play out differently and more equity or ULIP-oriented.
We take the next question from Shravan Talwar from Moolchand Healthcare.
I have 3 questions. The first centers around your general finance IPO. Can you provide a little bit more granularity on the time frame? Do you see it potentially happening in February based on market conditions or do you think this would be in March?
I think, as I said earlier, we are ready in terms of all the approvals. And obviously, market conditions are a thing you obviously look at. And I think so from a -- it's difficult to really give you an exact time line. But what we can tell you is that we are good to go in the next few months in terms of all the compliance is in place.
Sir, so you're still awaiting certain compliances? Or this is just a decision to go, no go?
There is obviously an approval which we have received from our regulators, which is BA and IRDA. But what happens is you have your results and all, you need to update them. And these are all procedural matters.
Right, Sir. Okay, fair enough. Now the next question I have is this year, you have obviously had a number of IPOs and, as a result, I think you'll have also booked a certain amount of capital gains. So the question I have is for FY '19 and FY '20, how do you see your capital gains playing out in the sense that, obviously, you have had some very successful and large IPOs? So do you see -- how do you see that investment gains or investment income playing out over the next 2 years?
So in terms of -- we had 2 listings this financial year. One was not an IPO. It was shares given out to existing shareholders of Reliance Capital. And second was where we did an IPO, the bigger chunk was the primary inclusion into the business. And Nippon Life was the one who actually did the second resale. Yes, so for Reliance Capital, it was a very small capital gain. Going forward for the future years, we can't really comment on future projections and what kind of capital gains will arise out of those.
But do you see your -- like when the management looking at your results, do you see that the income from the investments is a sustainable -- one can model a sustainable...
So like what we have said in the past, our endeavor is to continuously focus on our core operating businesses. We will ensure that the businesses do better than ever going forward as well. The noncore investments, we have very clearly stated that they will be liquidated over the next couple of quarters, and we are on track on that.
[Operator Instructions] We take the next question from the line of [ Jaineel Jhaveri ] From JNJ Holdings.
I just wanted to know that since the share price is trading below book, doesn't it make sense at the holding company level to buy back our own shares, instead of giving dividends because we are trading at almost 4.7x booked in a market where everybody is trading in multiples are booked. So is there a thought process on anything like that and sort of like skip the dividend and just buy back our own stock?
It's Amit. There is no thoughts around any buyback of -- the stock price is an end result. I'm sure the markets will ensure that it...
Right, but you...
And we continue to focus on the core business. So by default, it'll start reflecting on the stock price.
I understand that. But as an opportunistic thing, I mean, we are investing in other companies. Instead, we might as well invest in ourselves if we are so confident of our performance in the operating businesses. And why are we even investing outside when we can invest in ourselves and kind of do well?
Yes, we have no specific comment on this yet.
We take the next question from the line of from Sarvesh Gupta from Maximal Capital.
Sir, on the sale of the noncore assets, I think last 2 quarters, we've been seeing that most of the sale should happen by March '18 and whatever is pending will be done by March '19. So what are the updates on that in terms of the sale? How much have we already done? And what's in the pipeline in this quarter and for the next year?
So the liquidation are at various stages. So some may happen by March. But over the next few quarters, we will -- you will see significant reduction in the noncore investments. So I will not be able to give you specifics investment-wise. But yes, there are various stages, some are advanced stages as we speak.
So is there anything major in the pipeline for this quarter? Or will it be all spilled over to the next year?
No, there are a couple of things will happen this quarter, which will end -- it might get lower because the market is very volatile. It's largely linked to the markets. So I'm sure over the next few quarters, you will see significant liquidation of those noncore assets.
Sir, what is the stand-alone debt right now?
It's similar to what it was in September. So we don't give balance sheets in this quarter, but it's very similar to September. The net debt is around INR 14,000 crores.
[Operator Instructions] We take the next question from the line of Siji Philips from Axis Securities.
Just one question. How much impact do you envisage from LTCG and division distribution tax on equity investments in our mutual fund business?
We do not really see if there are impact. I think the way we have to see this is I think even today equities remain one of the most preferred asset classes. And even at this point of time, with this 10% also from a transition point also, it is far less than any other asset class. I think we believe that we have got a structured growth story and believe currently equity still outperform all other asset classes. So while any new tax is never taken well by investors initially. But I think we clearly see this to be settling down, and we do not see any significant impact on the business.
So there's one news going around that maybe mutual fund companies would give out more dividends this year for FY '18. So would that be an impact on the bottom line?
I think we clearly see, as we've always said, we see this as a long-term opportunity. Our core business is coming from retail. We do not like to take advantage of this tactical things because I think from a long-term point of view, we're giving what is right for the business, all these things, trying to give dividend because of the 31st March. I think we do not like to win that game. So I think from a bottom line point of view, I mean we will continue to pay dividends the way we used to pay over the earlier years, and the dividend policy will not change because of what has happened. Because in short-term that has come due to the budget.
We take the next question from the line of Nischint Chawathe from Kotak Securities.
Just first one on the life insurance side. Can you share the breakup of ticket size between traditional and ULIPs?
Yes. The traditional ticket sizes range at approximately 27,000. The ULIP ticket sizes is approximately 68,000, on an average.
Okay, sure. Just moving on if we could get some guidance on the commercial finance side, what could be the loan book breakup a year down the line? And what does that really mean for interfees or margins?
So Nischint, as we have discussed in earlier forums as well, 1 year down the line, we don't give guidance. But yes, in long term, we want retail to form 25% to 30% of the total AUM, and we will be on that trajectory starting next 5 quarters. So I'm talking about long term, which is next 3 to 4 years. Otherwise, we will continue our path on rebalancing the portfolio. SMEs will remain dominant portion of our AUM mix for coming 3 years.
And any sense on how this kind of swings the margins?
So as far as net interest margins are concerned, we -- while we look at retail, which is expected to be higher growth at the same time, higher OpEx, we are also recalibrating the SME business to also have low recal or low risk assets. So our target range for margin is at around current level, which is 5% to 5.5% of NIM.
Sure. So basically the strategy will kind of actually derisk the portfolio. I think that seems to be the right strategy.
Absolutely.
Sure. Just one final one, and this is again for -- sorry, this is on home finance. Now typically, if we you look at your peers, we see that disbursements -- and I mean, the seasonal trends sort of suggest that third quarter is kind of much stronger than the second and the first quarter. But I guess in this case, your disbursements have actually declined. So I was just curious how should one be reading this?
Yes. So Nischint, if you compare it sequentially, yes, they have slightly gone down. But however, we have indicated in the past that this 51% contribution total AUM from home loan and affordable home loans in the near to mid-term, we want to take it to a level of 55 and hence, there's a lot focus on the number of guesses in home and affordable home loans to date. Just to give you a number, on the affordable home loan front now, we are doing unique disbursements in the region of 1,200 cases to 1,400 cases every month. So that's the ongoing rate at which we have reached. So we are in the direction of growing the portfolio, and we are increasing affordable housing and the housing portfolio, and this will take you to a level of 55% overall AUMs. So this is one of the reasons because, see, most of the cases were due to -- you know that disbursements didn't happen at one go. When you acquire a client, sanction, disburse, except partly, it -- this doesn't happen in parts basis to your construction. And over a period of time, I'm sure this number will grow. But the endeavors will take this affordable housing loan and the housing to a level of 55.
So it's all of more of a rebalancing, is what you're trying to say?
Absolutely.
[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Asutosh Kumar Mishra from Reliance Securities for closing comments.
Thank you all investor for actively participating in the call, and thanks to the management for giving their perspective. Thank you.
Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Reliance Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.