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India Infoline - Saga continues: falling yields, rising volume…
India Infoline (IIFL) reported 19% YoY growth in topline to | 460 crore,
much ahead of our estimate of | 352 crore in Q3FY11. This growth was
completely driven by higher financing income of | 225 crore, up 377%
YoY and 180% QoQ. Brokerage income was up only 14% QoQ at | 187
crore despite a rise in market share from 3.9% (ADT of | 4600 crore) in
Q2FY11 to 4.2% in Q3FY11 (ADT of | 6200 crore, up 35% QoQ, 65%
YoY). IIFL also announced the launch of an arbitrage desk during the
quarter under review. As clarified by the management, the market share
of outside business was above 4%. Income did not rise due to a sharp
fall in calculated yields from 6.8 bps in Q3FY10 to 5.5 bps in Q2FY11 and
now to 4.7 bps (though not comparable directly due to arbitrage
volumes). We expect the pressure on yields to continue in the backdrop
of rising options segment. We expect a stable market share of 4% in
FY12E. We expect flattish topline and bottomline growth in FY12E.
Financing book grows even in sticky market conditions
The loan book jumped to | 2970 crore (up 148% YoY, 19% QoQ). Though
growth in margin funding/LAS of 171% YoY stayed flat QoQ, mortgage
portfolio rose to | 1544 crore, up 174% YoY leading to such a spurt in
loan book. However, higher cost of fund pressured spreads sequentially,
now down to ~4% (reported spread at 4.9%). We expect 48% CAGR in
loan book to | 3570 crore and contribute 42% to total topline by FY12E.
The management also indicated that of | 225 crore of financing income
for Q3FY11, | 65 crore was contributed by IPO financing, which can be
considered as one-off. Hence, we have not factored it in our estimates.
Valuation
In the wake of flattish topline, bottomline growth, we are revising down
our valuation multiple for IIFL (in line with market re-rating). We now
value the core business of the company (equity brokerage) at10x FY12E
EPS (fall in yields to offset rising market share, resulting in muted growth
for FY12E) and 0.5x FY12E BV for financing book and arrive at a fair value
of | 70. We are concerned by the rapid growth in financing book that can
pose an asset quality threat in the coming period considering poor market
conditions and apprehension on real estate market (mortgage portfolio
forms more than 50% of total loan book). We recommend an ADD rating.
Incrementally, interest expenses have gone up sharply. IPO funding
opportunity and rising rates have resulted in interest expenses rising from
| 1 crore to | 103 crore.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Infoline - Saga continues: falling yields, rising volume…
India Infoline (IIFL) reported 19% YoY growth in topline to | 460 crore,
much ahead of our estimate of | 352 crore in Q3FY11. This growth was
completely driven by higher financing income of | 225 crore, up 377%
YoY and 180% QoQ. Brokerage income was up only 14% QoQ at | 187
crore despite a rise in market share from 3.9% (ADT of | 4600 crore) in
Q2FY11 to 4.2% in Q3FY11 (ADT of | 6200 crore, up 35% QoQ, 65%
YoY). IIFL also announced the launch of an arbitrage desk during the
quarter under review. As clarified by the management, the market share
of outside business was above 4%. Income did not rise due to a sharp
fall in calculated yields from 6.8 bps in Q3FY10 to 5.5 bps in Q2FY11 and
now to 4.7 bps (though not comparable directly due to arbitrage
volumes). We expect the pressure on yields to continue in the backdrop
of rising options segment. We expect a stable market share of 4% in
FY12E. We expect flattish topline and bottomline growth in FY12E.
Financing book grows even in sticky market conditions
The loan book jumped to | 2970 crore (up 148% YoY, 19% QoQ). Though
growth in margin funding/LAS of 171% YoY stayed flat QoQ, mortgage
portfolio rose to | 1544 crore, up 174% YoY leading to such a spurt in
loan book. However, higher cost of fund pressured spreads sequentially,
now down to ~4% (reported spread at 4.9%). We expect 48% CAGR in
loan book to | 3570 crore and contribute 42% to total topline by FY12E.
The management also indicated that of | 225 crore of financing income
for Q3FY11, | 65 crore was contributed by IPO financing, which can be
considered as one-off. Hence, we have not factored it in our estimates.
Valuation
In the wake of flattish topline, bottomline growth, we are revising down
our valuation multiple for IIFL (in line with market re-rating). We now
value the core business of the company (equity brokerage) at10x FY12E
EPS (fall in yields to offset rising market share, resulting in muted growth
for FY12E) and 0.5x FY12E BV for financing book and arrive at a fair value
of | 70. We are concerned by the rapid growth in financing book that can
pose an asset quality threat in the coming period considering poor market
conditions and apprehension on real estate market (mortgage portfolio
forms more than 50% of total loan book). We recommend an ADD rating.
Incrementally, interest expenses have gone up sharply. IPO funding
opportunity and rising rates have resulted in interest expenses rising from
| 1 crore to | 103 crore.
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