RELIANCE CAPITAL
Reco price: Rs 359
Target price: Rs 455
Reliance Capital (RCap) 's Q2FY12 profits were down 66 per cent yoy. The company's asset management business saw further market share erosion (13 per cent now versus 14.5 per cent in March), life insurance's new premiums declined more than peers (down 49 per cent yoy versus 41 per cent for other private players) and non-life insurance continues to see high combined ratio (123 per cent). The silver lining came from the healthy growth in its consumer financing segment and possible earnings upsides from the 26 per cent life insurance stake sale to Nippon Life. RCap will continue to face operational headwinds, especially in capital market-related segments. The stock has underperformed the Sensex by 16 per cent over the last three months and valuations look cheap. Buy.
-Citigroup
LIC HOUSING FINANCE
Reco price: Rs 230
Target price: Rs 299
LIC Housing Finance's net profit for Q2FY12 declined 58 per cent yoy to Rs 98 crore, significantly below street estimates due to lower-than-expected NIMs and higher one-time regulatory provisions. Excluding the higher one-off provisions, the results were in line with analysts' estimates. Individual segment continued to grow well, with disbursements growing 24 per cent yoy, driving the total loan growth up 29 per cent yoy. More important, the projects' loan book started to gain traction again, with Q2 disbursements at Rs 410 crore versus just Rs 77 crore in Q1. However, NIM continued to shrink, declining a further 34 basis points qoq to 2.45 per cent, as cost of funds increased by 60 bps. Asset quality remained strong, improving further as has been with the past trend, with gross NPLs improving to 0.64 from 0.84 per cent in Q1, while the coverage ratio is now at 82 per cent. HSBC now estimates lower profits for FY12 (cutting it by 9.5 per cent) to factor in the higher provisions made in Q2. However, its earnings outlook for H2 FY12, FY13 and FY14 does not change much, as it expects margins to improve due to pick-up in project loans, the pass-on effect of rate increases made in Q2FY12 and the re-pricing of teaser rate loans. Maintain overweight.
-HSBC Global Research
