IDFC: Surge in fee-based income increases profit- ICICI Sec

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Surge in fee-based income increases profit…
A 58% YoY jump in the loan book to | 34397 crore and strong fee
emanating from the same pushed the consolidated bottomline to grow
at 15.8% YoY to | 3385 crore. We expect PAT to grow at 20% CAGR and
loan book at 26% CAGR over FY10-12E to | 1550 crore and | 44794
crore, respectively.


Fresh fund raising kicks off lending process….
Recent fund raising of | 3500 crore via equity and CCPS has boosted
advances growth at 58% YoY and 19% QoQ to | 34397 crore. NII
increased 35% YoY and 11% QoQ as loan growth picked up at the fag
end of the quarter. The full impact on interest income will come in the
next quarter. We expect NII to grow at 27% CAGR over FY10-12E on
account of an upward revision in loan book growth. NIM has remained
stable at 3.6%. However, spreads have come down from 2.7% to 2.4% on
a one year rolling basis depicting some pressure on cost of funds.

Non-interest income growth remains robust….
Non-interest income grew 11% YoY. However, if we exclude principal
investment income, fee income surged 42% YoY. The IB and broking
segment performed well with a 27% YoY jump to | 74 crore and nearly
doubled sequentially. The AMC fee also increased from | 69 crore to | 74
crore. A strong surge in disbursements helped loan related fees to rise to
| 106.8 crore, a jump of 181% YoY. We expect the overall non-interest
income to grow at 12% CAGR over FY10-12E.

Consistent on asset quality….
Asset quality continues to remain upbeat at 0.1% NNPA. We expect
delinquencies to remain low even for the next couple of years.

Valuation
RoA remained higher at 3.3% and with fresh equity infusion, asset growth
has picked up. This should help increase the leverage from current 4.2x.
We expect IDFC to grow its balance sheet at 25% CAGR over FY10-12E
(19% earlier). We have valued IDFC’s lending business at | 200 (2.5x
FY12E ABV) and on an SOTP basis given a target price of | 240 (includes
AUM valuation, NSE stake). We recommend a BUY rating on the stock.