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Infrastructure Dev Finance
Post 2Q results, maintain U/P;
Prefer Power Finco’s over IDFC
SOTP at Rs193/shr.; Maintain U/P; Prefer Power Finco’s
We are raising our SOTP value for IDFC to Rs193/shr. While the stock has
underperformed in past 1/3/6 months and YTD, we believe it may continue to U/P,
as stock price is capturing expected upside from earnings and its equity linked biz.
We are assigning a 100% premium to theoretical P/B multiples for its core biz.; vs.
+60-70% premium for Power Finco’s owing to IDFC's strong management; higher
earnings trajectory led by almost 3x b/s growth over FY10-13 and; core RoEs
rising to +15.5% by FY12. Additionally, we add Rs42/shr for its equity linked biz.
We prefer Power Finco’s that offer a better return profile (RoEs of +20-23%).
2Q profit marginally ahead (<2%), despite strong b/s growth
IDFC reported 2QFY11 earnings of Rs3.3bn, up +16% yoy. While <2% ahead of
our est., it was much lower than mkt. estimates. Despite strong b/s growth (45%
yoy) earnings growth was modest due to slowdown in other income and higher
provisions. Sanctions rose 3.3x, while disb. rose +3.5x yoy off a low base. Core
top-line (infra.) growth was strong at +42% yoy on volume growth of +58% yoy
(19% qoq), but est. margins down ~30bps yoy. Loan fees rose +230% yoy driven
by strong growth in disb, fees from broking up 17% yoy, but AMC fees rose only
9% yoy on redemptions in debt funds. NPLs under check (gross at 23bps).
Earnings growth low on dilution; Profit growth of +26/33%
We have raised our ests. by 2/4% for FY11/12; Profit growth at +26/33% in
FY11/12 to be driven by volume growth of +45% over FY10E-12E and margins
rising (partly aided by capital raising), as post NBFC-IFC status, IDFC can raise
funds through ECB route and also issue retail infra. bonds (tax-free) lowering its
funding costs. Earnings growth expected at +15/25% over FY11/12 on recent
capital dilution.
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