Reliance Capital shares recovered more than 8% to Rs 750 after falling 17% to hit the day’s low at Rs 668. Shares of Reliance Capital opened at Rs 687.40 ex-date this morning, after adjusting for the demerger of its home finance business. The record date for the demerger is fixed as September 6, which means person who holds shares of Reliance Capital on September 6 will get shares of Reliance Home Finance. The shareholders of Reliance Capital will receive one share of Reliance Home Finance for every share held. Post demerger, Reliance Capital will continue to hold a 51 percent stake in Reliance Home Finance.
Edelweiss Securities has retained a buy rating on the Reliance Capital stock. The brokerage house said in a note, “The demerger of the home finance business along with separate listing (record date of September 6, 2017) will entail sharper focus (pointed business targets) and more efficient capital allocation. Large opportunistic landscape and reinvigorated management team will help RHF (Reliance Housing Finance) sustain growth momentum and attain superior return ratios.”
The shares have posted stellar returns of more than 90% in the last eight months. In comparison, the BSE midcap index is up by 30% in the same period. The Nifty Financial Services index has rallied 36% since January this year.
In assessing the prospects of Reliance Capital going forward, Edelweiss said, “While cost ratios (more than 40 percent in Q1FY18) are currently taking a toll on returns, scaling business along with cost focus (efficient cost allocation and digital initiatives) will help the company improve cost ratios and, consequently, improve returns profile (take return on assets to 1.5 percent levels versus current 1 percent levels) while asset quality continues to be stable given strong risk management framework.”