Reliance Capital is one of the fastest-growing player across its businesses – life insurance, general insurance, AMC, brokerage and distribution of financial products. Morgan Stanley believes that it will be one of the top three players across these businesses in the next two to three years.

Morgan Stanley expects that almost all the businesses in which Reliance Capital is present to grow rapidly in India. This should be aided by a very strong macro environment, double-digit nominal GDP growth, lower age dependency, greater savings and shift in savings to equity linked instruments. The total revenue pool for the industry, across businesses, is expected to grow at a 22% CAGR over the next five years.

Reliance Capital will be the key player across these businesses. It has a significant amount of capital, which it is using to ramp up distribution. For instance, RCAP now has 125,000 life insurance agents – the third-largest agent network among private players. The investments are already paying off – RCAP is currently growing at 7x, 21x and 2x the pace of the industry in life insurance, general insurance and asset management.

The valuation of RCAP is based on a sum-of-the-parts methodology, using different metrics to calculate the value of various businesses to arrive at a price target of Rs 1,530 for the stock. The key contributors to the valuation are the life insurance business (Rs 697) and asset management (Rs 309) businesses. Given that RCAP is in an investment phase, returns are likely to be more meaningful over the longer term – proforma five-year fair value for the stock is Rs 4,040.

Morgan Stanley has initiated coverage on Reliance Capital with an overweight rating and a target price of Rs 1,530, implying 23% upside potential from current levels.