Reliance Capital has raised Rs 2,500 Cr from banks and financial institutions for refinancing its debt. The money has been raised through term loan and non-convertible debentures (NCDs) with a maturity period ranging from 5-7 years.
This would lower its cost of funds and hence would improve its net interest margins (NIMs). We expect it to report NIM’s in the region of 3.4-3.5% over FY17-19E. In addition, its cost/income ratio is expected to decline to go ahead. Reliance Capital will be utilizing funds to clean the balance sheet.
We believe the company’s focus on profitable growth with run down in non-core assets is likely to not only enhance capital efficiency but also improve its core performance. We expect its consolidated PAT to grow at ~15% CAGR to Rs 1,426 cr over FY17-19E. At 0.61x for FY19E P/BV, valuations are still reasonable. We have the positive outlook for the stock.
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