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IDFC: Best bet on infrastructure finance…
IDFC is a specialised financial intermediary with existing businesses in
project finance, principal investments, asset management (for third
party funds), investment banking, etc. The company has a strong
management and has put up a consistent performance with 19% CAGR
in PAT during FY08-10. We expect advances to grow at 26% CAGR to Rs
39,652 crore and PAT at 20% CAGR to Rs 1534.8 crore over FY10-12E.
Adequately capitalised with healthy RoA
The bank has consistently delivered RoA above 3% during the last
five quarters. However, RoE is expected to be in the 15-16% range
due to higher CAR of 19.6%. Leverage continues to be low at 5.3x
as on Q1FY11 giving cushion for future growth.
Asset quality remains upbeat
Asset quality continues to remain upbeat at 0.15% NNPA and 0.27%
GNPA. We expect delinquencies to remain low for next few years.
Consistently strong business growth and fee-based income
We expect NII to grow at 23% CAGR over FY10-12E due to asset
growth. NIM has remained stable at 3.6% though we believe the
same will come under slight pressure with rising rates. However,
infrastructure status, on the other hand, should help guard against a
sharp rise in cost of funds. Proportion of non-interest income has
been hovering around 44-47% of total income. We believe that with
the loan book building up, this proportion will decline to 41% by
FY12E. The AUM size stands at $6.9 billion generating hefty feebased
income protecting bottomline. Income from the investment
book also remains a 30% contributor to non-interest income.
Valuation
Lower RoEs of 15% and strong ROA of over 3% will continue as the
company builds up its asset book. We expect IDFC to grow its balance
sheet by 19% CAGR over FY10-12E. Asset quality continues to remain
upbeat at 0.27% GNPA. We have valued IDFC’s standalone business at Rs
205 (2.5x FY12E ABV) while on an SOTP basis, we have revised our target
upwards to Rs 240 (includes AUM valuation, NSE stake).
Technical Outlook
• Stock has witnessed steady but sustained up trend since it’s
March’09 lows around Rs. 45 and now appears consolidating near
its 2008 high around Rs. 230. A close look at chart points towards
a peculiar tendency of the stock wherein it rallies towards
resistances, then consolidates and breaks out
• As per Dow Theory, stock is in clear bull trend as it displays
ascending peaks and troughs on weekly and month charts. A
sustainable move from hereon above Rs. 230 would augur
extremely well for the stock
• Interestingly during this up surge stock has been consistently
taking support on its 13 week EMA (currently at Rs. 170) during
every correction.
• Weekly MACD has been steadily rising underlining strength and
supporting bullish count.
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