Reliance Capital shares fall 17% as home finance business demerged

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Reliance Capital shares fell more than 17 percent in opening trade Tuesday due to hiving off home finance business.

Today is the ex-date for demerger and the record date for the same is fixed as September 6, which means person who holds shares of Reliance Capital on September 6 will get shares of Reliance Home Finance.

Reliance Capital shareholders 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.

Reliance Home Finance (RHF) is expected to be listed in the second half of September.

“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 sustain growth momentum and attain superior return ratios,” said Edelweiss that maintained buy rating on Reliance Capital.

Given the huge opportunities in the housing segment (under-penetration /government/regulator support), the research house believes there is immense scope for Reliance Home Finance to sustain/improve growth momentum.

The business is currently high growth average margins business.

“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,” Edelweiss said.

At 10:04 hours IST, the stock price was quoting at Rs 732.35, down Rs 86.45, or 10.56 percent on the BSE.