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IL&FS Investment Managers Ltd
First Mover Advantage
The company is reaping the benefits of first mover advantage in the
space of infrastructure focused fund that was introduced in 1996.
Recognizing the latent potential and investment needs of the real estate
sector, it took initiative in bringing private equity in real estate in 2005.
The company is the first to structure participation of Foreign Institutions
in the PE framework.
Excellent Management Panel
With a talent pool of 52 professionals, IIML has exhibited its deal sourcing
capabilities driven by considerable experience of its team members. Due
to its deep local knowledge and relationships, the Team is able to create
and structure proprietary investment opportunities with companies that
the Team considers to possess the best potential for growth.
Continued Source of Revenue
With a diverse kind of business model, the company enables to generate
continued stream of revenue in terms of management fees that is
insensitive to market conditions. A management fee that is a percentage
of funds under management, usually 1.25-2.00%, provides a stable and
predictable source of revenue akin to an annuity. With a fund raising
plan of the company going ahead, this revenue line is expected to rise
proportionately.
Carry Profit – Adding further Value
Another source of earning for IIML is in the form of carry profit that is
received at the time of expiry of the funds after considering the
repayments to investors and hurdle rates. IIML is expected to get
incessant flow of carry profit from 2012 onwards. Further with the
augmentation of AUM, this stream is likely to generate a continued source
of income in the long term.
Saffron merger will Provide a Momentum
IIML successfully completed the merger of the Mumbai-based private
equity real estate firm Saffron Assets Advisors Pvt. Ltd. The deal also
involves the merger of Mauritius units of Saffron and IIML. The deal
brought another two funds under management of IIML of US $ 400 ml
i.e. Euronext-listed Yatra Capital Ltd of Euro 220 ml and Saffron India
Real Estate Fund I of US $ 103 ml.The cost of acquisition was equivalent
to 8.75% of total combined AUM that worked out at US $ 35 ml for
which the company paid US $ 15 ml from its internal accruals while debt
of US $ 25 ml was raised via redeemable debentures.
Valuation
On a MktCap/AUM valuation basis IIML stock is trading at 0.08x of its
AUM of $ 2.8 billion as on March 2010. The unlocking value in terms of
carry profit will start to materialize from FY2012 onwards. We have
derived present value of carry profit at Rs 10 per share, considering IRR
and hurdle rate of each fund. Adding this value to Rs 55 at MktCap/AUM
of 0.07x of FY12E, the target price is arrived at Rs 65. Hence we
recommend BUY rating on this stock with a medium to long term
perspective. We have not considered any upside in our Valuation from
the Saffron Fund Merger of which details are likely to come in Q3FY11
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