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India Infoline (IIFL)
Banks/Financial Institutions
Macro headwinds affect business outlook. We believe that India Infoline’s
businesses face significant risk at the current juncture due to likely lower equity market
volumes, rising interest rates, regulatory changes in insurance, likely regulatory changes
for wealth management and linkages to equity markets in general. Post the conference
call, we are revising our earnings to factor lower broking income. We are reducing our
target price multiple to 12X from 15X earlier, revise price target to Rs100 from Rs130.
Lower income from broking business though volumes appear strong
India Infoline (IIFL) reported increase in market share to 4.2% in 3QFY11 from 3.9% in 2QFY11. In
the conference call, IIFL’s management clarified that a large part of the reported market share gain
was on account of higher business in F&O and proprietary desk. Consequently, income from
broking was up marginally qoq—in line with the trends reported by most brokers.
Broking volumes, especially in the cash markets, have been subdued during the past three months.
While the decline in December may be a seasonal trend, subdued volumes in the past two months
is disappointing. Thus while overall volumes may be higher due to strong traction in the F&O
segment, lower cash market volumes pull down our estimates for broking income. IIFL’s
management has highlighted that its involvement in the QIP of Money Matters Financial Services
has not impacted its business—any likely impact from institutional clients poses a downside.
Insurance business remains strong
IIFL reported almost stable income from insurance distribution despite the implementation of new
IRDA guidelines. Income from distribution (primarily insurance business) was Rs471 mn as
compared to Rs507 mn in 2QFY11 and Rs417 mn in 1QFY11. APE collections were up 7% yoy and
almost stable for the past three quarters. In the conference call, management highlighted that
renewal income accounted for about 10% of its overall income. The company has shifted its focus
to endowment products in which it continues to earn commissions of about 30% as against 15%
in ULIPs and 2% in single premium policies. We are revising our estimates for the insurance
segment to factor higher-than-expected income from insurance distribution.
Finance business—loan growth on track for now
IIFL’s management has highlighted that its loan book growth will remain on track. IIFL reported
loan book of Rs30 bn, up from Rs25 bn in 2QFY11 and about Rs12 bn in 3QFY10. Average loan
book for the quarter was up 23% qoq while net interest income was up 40% qoq. Management
has highlighted that the company booked Rs650 mn (gross income) from IPO funding. Higher
arbitrage income also supported finance income for the quarter.
We continue to model loan book of Rs26 bn for March 2011E and Rs39 bn for March
2012E. Management has highlighted that the current liquidity scenario and rising rates in
the system will likely put pressure on NIM. Further, we believe that growth in these
segments may slow down due to the perceived risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Infoline (IIFL)
Banks/Financial Institutions
Macro headwinds affect business outlook. We believe that India Infoline’s
businesses face significant risk at the current juncture due to likely lower equity market
volumes, rising interest rates, regulatory changes in insurance, likely regulatory changes
for wealth management and linkages to equity markets in general. Post the conference
call, we are revising our earnings to factor lower broking income. We are reducing our
target price multiple to 12X from 15X earlier, revise price target to Rs100 from Rs130.
Lower income from broking business though volumes appear strong
India Infoline (IIFL) reported increase in market share to 4.2% in 3QFY11 from 3.9% in 2QFY11. In
the conference call, IIFL’s management clarified that a large part of the reported market share gain
was on account of higher business in F&O and proprietary desk. Consequently, income from
broking was up marginally qoq—in line with the trends reported by most brokers.
Broking volumes, especially in the cash markets, have been subdued during the past three months.
While the decline in December may be a seasonal trend, subdued volumes in the past two months
is disappointing. Thus while overall volumes may be higher due to strong traction in the F&O
segment, lower cash market volumes pull down our estimates for broking income. IIFL’s
management has highlighted that its involvement in the QIP of Money Matters Financial Services
has not impacted its business—any likely impact from institutional clients poses a downside.
Insurance business remains strong
IIFL reported almost stable income from insurance distribution despite the implementation of new
IRDA guidelines. Income from distribution (primarily insurance business) was Rs471 mn as
compared to Rs507 mn in 2QFY11 and Rs417 mn in 1QFY11. APE collections were up 7% yoy and
almost stable for the past three quarters. In the conference call, management highlighted that
renewal income accounted for about 10% of its overall income. The company has shifted its focus
to endowment products in which it continues to earn commissions of about 30% as against 15%
in ULIPs and 2% in single premium policies. We are revising our estimates for the insurance
segment to factor higher-than-expected income from insurance distribution.
Finance business—loan growth on track for now
IIFL’s management has highlighted that its loan book growth will remain on track. IIFL reported
loan book of Rs30 bn, up from Rs25 bn in 2QFY11 and about Rs12 bn in 3QFY10. Average loan
book for the quarter was up 23% qoq while net interest income was up 40% qoq. Management
has highlighted that the company booked Rs650 mn (gross income) from IPO funding. Higher
arbitrage income also supported finance income for the quarter.
We continue to model loan book of Rs26 bn for March 2011E and Rs39 bn for March
2012E. Management has highlighted that the current liquidity scenario and rising rates in
the system will likely put pressure on NIM. Further, we believe that growth in these
segments may slow down due to the perceived risks.
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