Cost rationalisation to improve R-Cap profits: Deutsche Bank
New Delhi: The cost rationalisation strategies being implemented across various businesses of Reliance Capital is set to improve profitability prospects, a research report said Monday.
Besides, the company is witnessing increasing profit contribution from operating businesses, as against treasury profits (income from investments), Deutsche Bank said in a research report on Reliance Capital (R-Cap), the financial services arm of Anil Ambani-led Reliance Group.
R-Cap is the group's holding company for various financial services businesses, including life insurance, general insurance, mutual fund, brokerage and wealth management, among others.
Deutsche Bank said the growth prospects are improving for various subsidiaries and Reliance Life is expected to witness new business growth of 10-12 percent over next two years in life insurance, compared to 35-45 percent decline in last two years.
"We believe that Reliance Life would be among the key beneficiaries of proposed reforms in the life insurance sector," it said.
Reliance Life has restructured its product portfolio over the past couple of years to offer more traditional policies and the product mix is now more skewed towards traditional (70 percent) products.
It has also reduced the number of agents and is focusing on improving operating metrics like higher ticket size and selling longer tenor policies, it said.
The company is actively talking to banks for a bancassurance tie-up, which would help in further improving the distribution network.
While general insurance is still under pressure, the focus in lending business is towards secured lending, such as mortgages (including loan against property), vehicle and infrastructure financing.
"Recent stock market rally augurs well for the mutual fund business," Deutsche Bank said, while noting that key risks for R-Cap would be any regulatory changes impacting the growth of life insurance and MF businesses.