Reliance Capital- Growth at cheap Valuations?


(lastgenesis) #21

found this on the net, the stake seems to be in Reliance big entertainment which i think is privately held by the family…


(learning) #22

Seems so - no announcement on the exchange so looks like Rel cap may not be eventual beneficiary.


(jainaj) #23

here comes the announcement.


(learning) #24

Good - so doubt got clarified.

Hopefully good times are ahead as deleveraging will take place.


(Gokul Krishnan) #25

Successfull divestment is good news. Hope r.cap keeps enough stake in the better companies such as this one.


(learning) #26

Don’t agree. These are not the operating business for Rel cap, It needs to sell off such stake and raise money and repay the debt taken to run the operating business. Ofcourse, it might hold a small stake for future capital raising purpose.

My whole thesis on Rel cap is centered on that it’s operating business grows and the Rel cap entitiy becomes debt free and all debt is at operating business level only.

This will help the business.


(Jiten Parmar) #27

Management had said its 14 to 15k crore. And they should be realize all of it. More than 2k cr already realized.

Codemaster sale proceeds will come to Rel Cap.

I think management is walking the talk.


(Gagan) #28

Over the 15 months, from April 2017 to June 2018, Reliance Capital sold the Yatra shares. On June 29 this year, Reliance Capital informed the US Securities and Exchange Commission (SEC) that the company is no longer a beneficial owner of any Yatra Online shares. “As of June 19, 2018, Reliance Capital Ltd may be deemed the beneficial owner of 0 shares,” the regulatory filing dated June 29 said.

Yatra Online equity shares cost it Rs 38 crore, they are currently valued at Rs 120 crore


(Gagan) #29

@jitenp Sir, appreciate if you could clarify on below.

When a company has non-core investments in books, are these investments recorded @cost basis or each year they record on market value?
for ex: in this case, the cost was 38 cr but market value is ~120cr, so as per books which value is already considered…?

Best Regards,
Gagan


(manish) #30

i think the market is discounting fraud / corp governance in reliance capital. The stock is quoting at valuations of PSU banks. Consistently making lower highs and lower lows. There is no other way the stock can trade so cheap with holding good companies / businesses, good growth , NPAs in limits.
One reason i can think of is that the value of their investments is far less than what they claim to be. Hope I am wrong.


(Susindar) #31

One more important reason is all related party loans made to RCOM (which may be insolvent), Rel Naval and Rel Power etc. these could be hard to recover and may need to be written off. I don’t understand this group especially it’s investment in Rel Naval which never made money and never looked like.


(lastgenesis) #32

This is a recent realization, until some time ago I was also thinking that Relcap is dirt cheap. But essentially now that all the subsidiaries are listed (other than the insurance one) one needs to look at it as a holding company (as apposed to a operational one it was earlier), and a holding company will have a holding company discount. It will not be correct or prudent to use book value or sum of parts without assigning discount. Operationally it is among middle to bottom of companies in the sector so I would hold the stock only for valuation arbitrage not for growth potential as such.

Book value I believe is around 700, so if you put a 40% discount it is worth Rs. 420, at 30% 490. So while it is undervalued it is a lot less undervalued than one would think if one compared P/BV of this to an AB capital or Bajaj Finance or Edelweiss.


(learning) #33

Its amazing how prices force us to revisit our thesis.

True the business had lot of negativity, but it is nothing new. These issues did not happen in last 6 months. Rather in last 6 month mgmt has for change walkes the talk and sold of non core investments.

For me, instead of worrying abt these known issues, would rather focus on the debt reduction, pledge status, non core investment sales, holding compnaies performance. If these remain positive for next 2 qtrs i am sure price would follow.

So far signs are good. But ofcourse mr market know more in long term. So, in worse case i am factoring for a 20-30% loss on my postion in next 6 months.

Lets see, hoping the good things continue.


(lastgenesis) #34

Well 1 year ago it was not a holding company, now home finance & the AMC are listed and insurance listing is planned, so it is one now. When facts change one’s analysis should also change… Tomorrow if AB capital lists it’s businesses in the future same thing would happen. I don’t see any holding companies where 100% value of book is reflected in the price…


(manish) #35

One should be open to change his opinion in light of new circumstances. Sometimes corporate governance issues come in public very late. But the share price action will reflect that.
I might be wrong and Reliance cap may turn out to be a very good investment. Only risk I see is corp governance / fraud.

Also this book value argument that the share price is fairly valued is not correct. The holding company discount ( about 50-70% depending on promoter quality n market cycle) is given to the market value of the investments and NOT to the book value of the investments.

So lets say hypothetically (for sake of example) if market value of the companies RCAP is holding comes out to be Rs 1500 per share then applying a holding company disc of 50% , RCAP fair value will be Rs 750.

Another imaginary example : Suppose if there is a company called Enfield motors which is a holding company of Eicher motors (50% holding) having same no. of outstanding shares as Eicher motors. So the market value of investments per share of ENFIELD motors will be half of EICHER that is about Rs 14000 per share and book value will be about half of Eicher that is Rs 1400.
So will the shares of Enfield motors trade at 50% disc to book value at Rs 700.
NO, not at all, they will trade at discount to market value , at 50% disc they will be at Rs 7000.


(Gagan) #36

Regarding Holding Company argument, I think it’s a bit premature to term it as holding co and assume huge discount, Still, reliance cap have
1)Reliance Money
2)Reliance Nippon Life Insurance(Life + Health)
3)Reliance General Insurance
4)Broking business

Leaving aside Broking business as its very small, other 3 business are significant and operational.

Regarding Price action:
lately, the narrative in the market has been BUY ONLY QUALITY Co’s, and for sure R-CAP does not fit in this narrative and corrected in-line with other mid & small caps, but narratives keeps changing in market every now & then, earlier it was Buy Fast Growth= small & mid caps, and who knows what narrative will come tomorrow?

To my understanding only time-tested narrative is Buy Value= Buy with margin of safety, and I think R-CAP fits in this category, with a decent probability of Growth as well.
Rest fundamentally I don’t think any circumstances changed to reconsider the thesis, in-fact all the recent actions are in the right direction with disinvestments.