Buy IDFC -Sturdy lending business, resilient AMC fees; Anand Rathi

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IDFC
Sturdy lending business, resilient AMC fees; reiterate Buy
IDFC’s profit rose 19.1% yoy, led by stable spreads, resilient
AMC fees and strong capital market revenue. Its lending and
AMC business are steady, re-affirming our belief in its quality of
earnings. With its strong domain expertise and unique
positioning, we believe it is poised to capitalize on opportunities
in infrastructure funding. We maintain our Buy rating.

 Lending business sturdy; spreads improve. Disbursements
rose 68% yoy; approvals however dropped 43.8% yoy. The infra
loan book grew 50.7% yoy to `356.5bn. Spreads, at 2.4%, were
largely stable, leading to NII rising 66.7% yoy. We expect NII to
grow 29.1% in FY12 and 25.3% in FY13, led by a strong infraloan
pipeline and IDFC’s ability to manage spreads efficiently.
 AMC business resilient, capital market revenue strong. Asset
management fees (from mutual funds) rose 7% yoy. Current AUM
of US$5.9bn (68.5% comprises mutual funds) is likely to drive
growth in fee income. Capital market revenues were buoyant, with
yoy growth registered in investment banking (236%) and advisory
fees (67.7%). However, principal investment gains fell 71.4% yoy
to `290m, leading to the restrained non-interest income.
 Valuation. Our sum-of-parts valuation gives us fair value of `219;
we value the lending business at `185/share (2.3x FY12e BV) and
other businesses and investments at `34/share. Risks: substantial
slowdown in infrastructure spending and inability to mobilise
resources for the AMC business.