We raise our SOTP-based price target to Rs 354 from Rs 320. The MF business has retained its best in-class position in terms of size and business quality. But we remain concerned about credit quality in the lending business. We upgrade our FY14-15e earnings by 7-25%, building in higher life insurance growth, but weaker asset quality in lending.
Our underweight rating was mainly predicated on low agency productivity in life insurance, which was impacting growth and returns. However, Rel Lifes performance has seen a strong uptick in the nine months of FY14, with sharp improvement in agent productivity (80%+ y-o-y). This has likely been due to three key changes a) systematic reduction in inactive agent base; b) structured processes for hiring/segmenting agents; and c) focus on higher ticket sizes.
Rel Cap Asset Management (RCAM) the AMC business has consistently been among the top two players in terms of AUM size. Furthermore, business mix is healthy revenues as a percentage of AUM are higher than other large-sized peers.