Reliance Nippon Life Asset Management Ltd IPO............. Should you apply????

Hello Friends,

We are in the last week of the month and this month has seen lesser IPOs than the previous months. Another one lined up is Reliance Nippon Life Asset Management Ltd which was formerly known as Reliance Capital Asset Management Ltd. The company is in the business of providing life insurance.

Lets first look at the basics.

Particulars	Details
Company Name	Reliance Nippon Life Asset Management Ltd
Issue Open Date	25th Oct 2017
Issue Closing Date	27th Oct 2017
Issue Price Band	Rs 247 to Rs 252
Issue Size	Rs 1542.24 Crs
Shares per Lot	59 Shares

About the company!!!

The company is in the business of life insurance. But along with life insurance it also provides Health insurance, pension plans, Mutual Funds, retirement plans etc. It’s a part of ADAG i.e Anil Dhirubai Ambani Group. The company is a collaboration between Reliance Capital and Nippon Life of Japan. After the government increased FDI investment in Insurance from 26% to 49%, Nippon Life increased their stake in the company to 49%.

Now that you know the company, should you invest in Reliance Nippon Life Asset Management Ltd?

Come let’s dive into this company to look at the fruits it might hold.

Utilization of Funds!!!

The issue is partly an OFS and partly a fresh issue.

1.       OFS of Rs 925.34 Crs which will go to the promoters and will not be received by the company.

2.       Fresh issue of Rs 616.90 Crs which will be utilized for the following

a.       Setting up new branches and relocating certain existing branches   Rs 38.31 Crs

b.      Upgrading the IT system                                                                   Rs 40.65 Crs

c.        Advertising, marketing and brand building activities                      Rs 72.10 Crs

d.       Lending to its Subsidiary (Reliance AIF) for investment as continuing interest in the new AIF schemes managed by Reliance AIF                                    Rs 125.00 Crs

e.       Investing towards their continuing interest in new mutual fund schemes managed by the company                                                                                       Rs  100.00 Crs

f.         Funding inorganic growth and other strategic initiatives                 Rs 165.00 Crs

g.        Meeting expenses towards general corporate purposes.                  Balance

A major chunk of money is gonna go to its subsidiary it seems.

So into the Financials now!!!!

1.       The company’s networth has increased from Rs 1417.82 Crs as on 31.03.2013 to Rs Rs 1870.30 Crs as on 31.03.2017 and to Rs 1653.47 Crs as on 30.06.2017. The company has made profits in Q1 of 2017-18 and therefore the dip in networth should amount to some adjustments in the reserves. Growth in networth is not that great. However when compared to other long term liabilities the company is very much in a comfortable position.

2.       The company has a good amount of money invested in fixed assets mainly intangible assets. The company is having Rs 235.63 Crs in intangible assets as on 30.06.2017 whereas only Rs 9.17 Crs in tangible assets.

3.       The company’s investment value, which is the most important figure for an asset management company is Rs 626.50 Crs as on 30.06.2017 which is a good number.

4.       The company’s total revenue was at Rs 712.67 Crs in the year 2012-13 which has increased to and Rs 1400.44 Crs in 2016-17 and also made a business of Rs 378.15 Crs in Q1 of 2017-18.

5.       Now looking into the profit of the company, its increased from Rs 198.96 Crs in 2012-13 to Rs 405.57 Crs in 2016-17. Even in the 3 months of Q1 2017-18 the company has made a profit of Rs 834.37 Crs which if we annualize will be around Rs 333.75 Crs, which is less than the previous year. Not sure how much of this is attributable to recent reforms in the country. I sure hope that the other 3 quarters will be very much fine.

Valuations!!!

The company’s growth on the EPS level has not been that great. Its basic EPS has only increased from Rs 6.2 in 2014-15 to Rs 6.87 in 2016-17. The diluted is not much different. So with a EPS of Rs 6.87 the PE at Rs 252 comes around 36.68, which is very reasonable as compared to SBI life and very much inline with ICICI prudential. The issue is surely not overpriced and I would surely say that it’s a little undervalued. Further Insurance is a very profitable business, not to mention that they have mutual funds as well under their arsenal. You can see that the company’s revenue in 2016-17 was Rs 1400.44 Crs and the profit during that year was Rs 405.57 Crs now that’s almost 30% profit.

So the verdict on this case!!!

Reliance Nippon Life Asset Management Ltd looks very promising and is a “Subscribe”.

Thank you very much for joining us.

-RicherInvestor

Written by Roger Vins Herman (CA, Mcom)

Disclosures:

The author or any person at RicherInvestor doesn't have any financial interest in the Company.