Reliance Housing Finance

Sep-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 Jun-16 Apr-16 Jan-16 Nov-15 Sep-15 Management Meet Rating matrix (Reliance Housing Finance) Rating Listing 115-120 Target Period Potential Upside Key financials (Reliance Housing Finance) Crore FY15 FY16 FY17 NII 142 229 217 PPP 120 153 94 PAT 69 87 170 Price chart (Reliance Capital) 10,500 9,000 7,500 6,000 4,500 3,000 1,500 0 Research Analyst RCAPT IN Equity Kajal Gandhi kajal.gandhi@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com NIFTY Index 900 800 700 600 500 400 300 200 100 0 Reliance Housing Finance September 4, 2017 Aggressive growth targets to drive earnings Reliance Housing Finance (RHF) is expected to be demerged from Reliance Capital (RCap) as announced earlier. The record date for the same is September 6, 2017. Reliance Capital shareholders will receive one share of RHF for every share of RCap. Post demerger, Reliance Capital will continue to hold a 51% stake in RHF. We met management of Reliance Housing Finance to get an insight into the current scenario, future plans and management outlook on growth & profitability. The loan book grew sharply higher by 48% to 9980 crore in FY17 and 50% YoY in Q1FY18. AUM was at 13022 as on Q1FY18. The management has guided for loan growth to remain strong and with a target of 50000 crore by the end of year 2020. As on FY17, the loan book consists of home loan at 38% of AUM, affordable housing is 20%, loan against property (LAP) is 18% and construction finance of 20%. Profit improving, RoE to be maintained ~15% Reliance Housing Finance started in 1998. However, in last couple of years, it has seen a sharp surge while a change in top management has led to renewed focus on growth in housing finance entity. It is mostly concentrated in western area, spreading to other geographies. RHF reported NII growth of 40% YoY in Q1 at 76 crore and flat in FY17 at 217 crore (adjusted for demerger). Margins surging in Q1 to 3.9% were an aberration. We expect same to be ~3.4-3.5% as per management guidance similar to FY17 reported NIMs. Overall cost to income ratio is seen ~45-50%. PBT grew 30% YoY in Q1FY18 at 45 crore and was flat in FY17 at 137.7 crore. However, PAT grew 96% YoY in FY17 due to tax write-backs in the process. GNPA ratio was at 0.8% as on Q1FY18. The management expects RoE to sustain ~15%, FY17 RoE stood at 17.7% Expected listing of RHF in15-20 days post record date of September 6 Reliance Housing Finance reported a networth of 1129 crore in FY17. Post equity infusion and share issuance post demerger, expected networth is seen at 1400-1500 crore at the time of listing. Factoring in growth in AUM at 40-50% for the next couple of years based on the company target reaching 50000 crore by end of 2020, we value the company at 3x FY19E NW. Accordingly, we expect ~ 115-120 per share on FY19E for housing finance company on listing for RHF. Reliance Capital currently holds 100% in RHF. Post listing, it will be down to 51%. With increase in SoTP on revised valuation of RHF at 3x and reducing the stake to 51% in RHF, our revised SOTP for Reliance Capital will be around 854 post demerger. We maintain BUY. We believe Reliance Capital s CMP can adjust lower by 70-80/share post demerger. Exhibit 1: Revised valuation for Reliance Capital on SOTP basis post demerger Business Segment FY19E /share Reliance Life @51% 149 Reliance General Insurance @100% 152 Reliance Broking @100% 20 Reliance AMC @51% 299 Reliance Consumer Finance @100% 210 Reliance Home Finance @51% 119 Total per share of Rcap 948 Holding co. disc 95 Value per share of Rcap 854 Source: ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research

Financial summary Profit and loss statement Crore (Year-end March) FY15 FY16 FY17 Interest Earned 457.8 764.7 969.8 Interest Expended 316.1 535.8 753.0 Net Interest Income 141.7 228.9 216.8 growth (%) 12.5 61.5-5.3 Non Interest Income 56.5 50.6 76.8 Net Income 198.2 279.5 293.6 Operating Expense 77.8 126.4 199.9 Operating Income 120.4 153.1 93.7 Provisions 14.2 16.5 23.2 PBT 106.2 136.7 137.8 Taxes 37.1 49.9-40.0 Net Profit 69.1 86.8 170.0 growth (%) 59.2 25.6 95.9 Balance sheet Crore (Year-end March) FY15 FY16 FY17 Sources of Funds Capital 65.8 65.8 115.8 Reserves and Surplus 467.5 554.2 1013.0 Networth 533.3 620.0 1128.8 Borrowings 3639.4 5387.0 8288.0 Other Liabilities 1384.7 1686.5 1887.7 Total 5557.4 7693.5 11304.5 Uses of Funds Cash / bank balance 355.1 720.1 252.0 Investments 58.4 80.3 507.3 Loans 5084.3 6725.1 9980.0 Fixed assets 39.5 44.3 29.4 Other Assets 20.1 123.7 535.8 Total 5557.4 7693.5 11304.5 Key Highlights Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Business ( crore) AUM 8259.0 9217.0 9656.0 11174.0 13022.0 Total Loans 7750.0 7928.0 8459.0 9983.0 11680.0 Disbursements 1579.0 1593.0 1203.0 2957.0 2655.0 Yields & Margins (%) Net Interest Margins 3.2 3.3 3.5 3.5 3.9 Yield on average advances 11.9 12.0 12.1 12.2 11.7 Quality and Efficiency (%) Cost / Total net income 49.2 51.8 50.8 66.0 42.1 GNPA ratio 1.0 1.2 1.1 0.8 0.8. ICICI Securities Ltd Retail Equity Research Page 2

ICICIdirect.com coverage universe (Banking) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E Bank of Baroda (BANBAR) 143 200 Buy 33,186 6 10 19 23.9 14.0 7.5 1.5 1.2 1.0 0.2 0.3 0.6 3 6 10 Punjab National Bank (PUNBAN) 144 180 Buy 30,775 6 14 21 23.2 10.0 6.8-0.7 2.9 1.8 0.2 0.4 0.5 3 7 10 State Bank of India (STABAN) 279 340 Buy 240,760 13 18 26 21.2 15.4 10.7 1.7 1.5 1.4 0.4 0.5 0.7 6 8 10 Indian Bank (INDIBA) 296 380 Buy 14,096 29 34 45 10.1 8.7 6.5 1.3 1.2 1.0 0.7 0.8 1.0 8 10 12 Axis Bank (AXIBAN) 504 585 Buy 122,229 15 23 40 32.8 21.6 12.6 2.5 2.3 1.9 0.7 0.9 1.3 7 10 15 City Union Bank (CITUNI) 159 180 Buy 10,496 8 9 11 20.9 17.5 15.1 3.3 2.8 2.4 1.5 1.6 1.6 15 16 16 DCB Bank (DCB) 192 200 Hold 5,908 7 9 11 27.3 22.0 17.6 3.0 2.4 2.1 0.9 1.0 1.1 11 12 12 Federal Bank (FEDBAN) 109 140 Buy 21,303 5 6 8 22.6 18.9 14.0 2.3 1.9 1.7 0.8 0.9 1.0 10 11 12 HDFC Bank (HDFBAN) 1,744 1,840 Hold 455,084 57 68 84 30.7 25.5 20.6 5.1 4.6 4.1 1.9 1.9 2.0 18 19 20 IndusInd Bank (INDBA) 1,649 1,650 Hold 99,264 48 59 75 34.4 28.2 22.1 4.9 4.3 3.7 1.8 1.8 1.9 15 16 18 Jammu & Kashmir Bk(JAMKAS) 80 105 Buy 4,537-31 8 12-2.6 10.3 6.7 1.3 1.1 1.1-2.0 0.5 0.7-27 7 10 Kotak Mahindra Bank (KOTMAH) 968 970 Hold 240,760 19 23 30 52.2 41.4 32.6 6.9 5.9 5.2 1.7 1.8 2.0 13 14 16 Yes Bank (YESBAN) 1,745 1,800 Hold 80,183 73 98 128 23.9 17.9 13.7 3.7 3.1 2.6 1.8 1.9 2.0 19 19 20 ICICI Securities Ltd Retail Equity Research Page 3

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