Japan's Nippon Life Insurance Company will invest nearly $290 million or Rs 1,450 crore to buy 26 per cent stake in Anil Ambani promoted Reliance Capital's asset management (AMC) business, giving a new boost to it.

Speaking to NDTV Profit on the deal, Sam Ghosh, CEO, Reliance Capital said that the partnership with Nippon will enhance overall processes and profitability of the company. “Nippon will help in taking our products overseas. We are looking at bringing in expertise from Nippon into our business,” he added.

Below is the complete interview. Also watch the accompanying video.

 How have you arrived at the valuation for the deal?
 

If you look at the valuation of the deal between the two parties, Nippon life did a due diligence of our business on the basis of parameters they have used. These parameters will be including the fact that there is a growth potential of the Indian market in the future. 

We are mainly an asset management company in the retail sector with large number of retail customers. They also looked at the SIP customer base that we have nearly 30 per cent market share in the SIP customer base. They have also looked at our innovation processes. We have been innovative in the gold fund; in fact, we are one of the first to launch the gold fund. 

We have also been innovative in bringing in a new debit card in our liquid fund for retail customers and we have had large traction in that looking at the people, looking at the processes that we follow and the type of customers we focus on. Looking at the future growth prospects of the Indian market, I think they have come with a valuation for the company and the valuation is not just based on a percentage of assets under management (AUMs). If you look at it, it’s based on number of discounted cash flow method based on percentage of AUMs and based on the profitability of the company also.

 What do you see as some of the benefits of Nippon as a partner?
 

Nippon and Reliance were looking at three areas of corporation; one was managing some of Nippon Life’s fund in India. Nippon life has nearly Rs 30, 00,000 crore of funds under management. The second area was if Nippon life could distribute some of our products in Japan and in South East Asia.

The third area was taking a stake sale in the Reliance Capital Asset Management business, thereby bringing some expertise into the business in terms of processes, systems management methodologies as well as bringing any new products they may have in the market and exchange between the two companies would help our asset management company to do better. So these are some of the benefits both parties expect. They will move together towards enhancing overall processes and profitability of the company.

 Are you open to offloading more stake in the AMC arm to Nippon or any other players?
 

At this point, we have no intentions to do so. We were discussing with Nippon over the 26 per cent stake sale and they have accepted that. However, at this point, we are not looking at any other partners or increasing our stake sale by any point. But we are open for a discussion.

Do you expect the life insurance segment to turn profitable with the Nippon alliance in the current fiscal?
 

Certainly. We have been showing small profits throughout the year, in each quarter and we have also mentioned for this full financial year that we will certainly show profit. So for the life company, it is going to show fairly decent profit this financial year and would also remain profitable going forward.

Have you started preparing yourself for the IPO since you are eligible for it in March 2012?
 

There are number of criteria on that. It is just not a period of ten years after which you can go for an IPO. The other criteria that was mentioned by IRDA is that you will have to have twice embedded value; your shareholders fund should be equal to two times of the embedded value. If you have reached that stage then only you can think for going for an IPO. 

We haven’t decided where we want to go in the next couple of years. If the FDI guidelines change then we will look at whether we bring the increased FDI from 26 to 49 to Nippon Life. At that point we may think of an IPO, but at this point there are no plans of an IPO.