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Infrastructure Development Finance (IDFC IN)
Diversified financials: India
6-mth rating: 1
Target price: Rs215.00 → Rs190.00
Share price: Rs145.20 (28 Feb)
Sound business model at attractive valuations
Market concerns appear to be overplayed
Recent concerns in the market about an expected slowdown in the
number of new infrastructure projects, likely pressure on NIMs and
unfavourable macro conditions have taken their toll on
Infrastructure Development Finance’s (IDFC) valuations. The
share price has fallen by 32% from its peak (November 2010). As
such, its lending business is now valued at a PBR of 1.5x and a
PER of 11x on our FY12 forecasts, which we see as attractive.
Low leverage ratio an advantage in current environment
We believe IDFC’s low leverage ratio of less than 5x currently
is an advantage amid the rising interest-rate scenario, and should
support the company’s current NIM, as more than 20% of the
company’s loans are funded by capital. We forecast the ROE for
the company’s core lending business to improve to 15.5% for
FY12 and 17.3% for FY13, from a low of 14% for FY11.
Earnings growth likely to remain high for FY12-13
We forecast an FY12-13 consolidated net-profit CAGR of 23%,
and an EPS CAGR of 30% for the lending business. We have
lowered our SOTP-based six-month target price to Rs190 (from
Rs215) for which we assign Rs43/share for the value of IDFC’s
investments and Rs147/share for the value of its core lending
business. We would see continued high interest rates as the key risk
to our loan-growth assumption.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infrastructure Development Finance (IDFC IN)
Diversified financials: India
6-mth rating: 1
Target price: Rs215.00 → Rs190.00
Share price: Rs145.20 (28 Feb)
Sound business model at attractive valuations
Market concerns appear to be overplayed
Recent concerns in the market about an expected slowdown in the
number of new infrastructure projects, likely pressure on NIMs and
unfavourable macro conditions have taken their toll on
Infrastructure Development Finance’s (IDFC) valuations. The
share price has fallen by 32% from its peak (November 2010). As
such, its lending business is now valued at a PBR of 1.5x and a
PER of 11x on our FY12 forecasts, which we see as attractive.
Low leverage ratio an advantage in current environment
We believe IDFC’s low leverage ratio of less than 5x currently
is an advantage amid the rising interest-rate scenario, and should
support the company’s current NIM, as more than 20% of the
company’s loans are funded by capital. We forecast the ROE for
the company’s core lending business to improve to 15.5% for
FY12 and 17.3% for FY13, from a low of 14% for FY11.
Earnings growth likely to remain high for FY12-13
We forecast an FY12-13 consolidated net-profit CAGR of 23%,
and an EPS CAGR of 30% for the lending business. We have
lowered our SOTP-based six-month target price to Rs190 (from
Rs215) for which we assign Rs43/share for the value of IDFC’s
investments and Rs147/share for the value of its core lending
business. We would see continued high interest rates as the key risk
to our loan-growth assumption.
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