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Roadshow feedback
We hosted Mr. Rajiv Lall (MD and CEO of IDFC) for a roadshow in London.
He foresees a risk of slowdown to the near-term investment cycle due to
unstable political situation, rise in commodity prices and interest rates.
While IDFC can not be fully isolated from macro trends, he is confident of
achieving 30-40% annualised asset growth over 3-4 years supported by
its pipeline of sanctions and underlying demand for infrastructure. He is
also confident of asset quality trends and highlighted negligible exposure
to risky segments and high NPL coverage. Spreads are likely to be stable
and ROE will improve as balance sheet is leveraged.
Some slowdown in infra-spend likely, but strong long-term trends
Mr. Lall believes that a confluence of multiple factors like political imbroglio,
corruption charges, high commodity prices, rising interest rates and slowdown
in inflow of foreign capital (debt and equity) can impact investment in new
projects. However, the long-term investment requirement is large, especially
from sectors like power, ports, roads and urban infrastructure.
IDFC’s loan growth to be healthy, but could be volatile
IDFC is confident of delivering 30-40% Cagr in assets over 3-4 years driven
by pipeline of sanctions and underlying demand for infrastructure. But growth
may be uneven and would be influenced by outlook of corporate India to
investment in infrastructure and capex. Mr. Lall highlighted that banks are
facing caps on exposure norms that is enabling IDFC to gain market share.
Spreads to be stable; ROA to compress, but ROE to improve
Mr. Lall believes that spreads are likely to stabilise at current levels, but
margins may compress as leverage rises from ~5x presently to ~7x over next
three years. The rise in gearing will pull down ROA and drive expansion in
ROE. Our estimates factor ~40bps compression in spreads over FY11-13; rise
in gearing will impact ROA negatively, but will drive expansion in ROE.
Asset quality strong and adequate cushion against slippages
Management is confident of asset quality and highlighted negligible exposure
to risky segments. In the telecom segment IDFC’s exposure is primarily to the
incumbent companies and in power segment loans are largely to corporate
groups to set-up captive power units. Exposure to airlines and real estate is
negligible. Impact of asset quality pressures will be cushioned by high NPL
coverage ratio (8x of gross NPLs). More importantly, IDFC believes that
corporate balance sheets are less risky than in 2007-08.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Roadshow feedback
We hosted Mr. Rajiv Lall (MD and CEO of IDFC) for a roadshow in London.
He foresees a risk of slowdown to the near-term investment cycle due to
unstable political situation, rise in commodity prices and interest rates.
While IDFC can not be fully isolated from macro trends, he is confident of
achieving 30-40% annualised asset growth over 3-4 years supported by
its pipeline of sanctions and underlying demand for infrastructure. He is
also confident of asset quality trends and highlighted negligible exposure
to risky segments and high NPL coverage. Spreads are likely to be stable
and ROE will improve as balance sheet is leveraged.
Some slowdown in infra-spend likely, but strong long-term trends
Mr. Lall believes that a confluence of multiple factors like political imbroglio,
corruption charges, high commodity prices, rising interest rates and slowdown
in inflow of foreign capital (debt and equity) can impact investment in new
projects. However, the long-term investment requirement is large, especially
from sectors like power, ports, roads and urban infrastructure.
IDFC’s loan growth to be healthy, but could be volatile
IDFC is confident of delivering 30-40% Cagr in assets over 3-4 years driven
by pipeline of sanctions and underlying demand for infrastructure. But growth
may be uneven and would be influenced by outlook of corporate India to
investment in infrastructure and capex. Mr. Lall highlighted that banks are
facing caps on exposure norms that is enabling IDFC to gain market share.
Spreads to be stable; ROA to compress, but ROE to improve
Mr. Lall believes that spreads are likely to stabilise at current levels, but
margins may compress as leverage rises from ~5x presently to ~7x over next
three years. The rise in gearing will pull down ROA and drive expansion in
ROE. Our estimates factor ~40bps compression in spreads over FY11-13; rise
in gearing will impact ROA negatively, but will drive expansion in ROE.
Asset quality strong and adequate cushion against slippages
Management is confident of asset quality and highlighted negligible exposure
to risky segments. In the telecom segment IDFC’s exposure is primarily to the
incumbent companies and in power segment loans are largely to corporate
groups to set-up captive power units. Exposure to airlines and real estate is
negligible. Impact of asset quality pressures will be cushioned by high NPL
coverage ratio (8x of gross NPLs). More importantly, IDFC believes that
corporate balance sheets are less risky than in 2007-08.
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