IL&FS Investment Managers Ltd - Q4FY11 Result Update:: LKP Research

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ILFSVC consolidated nos. include 8 months of income of SAAPL. The AUM of the company increased by USD 400 mn, however the profitability of the company was negatively impacted on account of amortization of consideration paid for amalgamation of Saffron Capital and also interest cost on loan taken to acquire Saffron Capital. We introduce FY13E earnings estimates and downgrade the stock to HOLD.

Result Highlights Q4FY11

Total Income Up by 9.8%

The total income is up 9.8% YoY at Rs.563 mn in Q4FY11. The total income for FY11 is up by 11% YoY at Rs.2012 mn. The increase in total income is due to increase in AUM on account of amalgamation of SAAPL.  As no new funds were raised in the last 2 years the total income has been flat YoY, the growth seen in the total income is mainly due to the merger of SAAPL with ILFSVC.

EBITDA Up By A Mere 1.6%

EBITDA grew by a mere 1.6% YoY to Rs.335 mn in Q4FY11. The EBITDA Margin for Q4FY11 stood at 60.5% v/s 65.3% YoY. For full year FY11 EBITDA grew by 4% YoY to Rs.1182 mn and EBITDA Margin stood at 58.7% v/s 62.5%. The increased expenditure from the SAAPL amalgamation is the key reason for a sharp dip in the EBITDA Margins.

PAT Sharply Down By 22%

PAT for Q4FY11 de-grew by a sharp 22% YoY to 182 mn and PAT Margins also fell sharply from 45.7% in Q4FY10 to 24.4% in Q4FY11. For full year FY11 the PAT de-grew by 6.7% to Rs.690 mn and PAT Margins stood at 34.3% in FY11 v/s 40.8% in FY10. The key reason for a sharp fall in profitability is

·           Rs.   880 mn of amortization of consideration paid for amalgamation of SAAPL.

·           Interest on USD 20 mn loan taken to fund the SAAPL amalgamation.

Outlook & Valuation

ILFSVC currently has an AUM of USD 3.2 bn, the company is further planning to raise USD 1.4 bn in FY12E & USD 800-900 mn in FY13E thereby crossing the USD 5 bn mark in the next 2 years. FY11 has been a very challenging year for the company with a successful record on 15 exits and 18 investments in a challenging economic environment.  Despite a poor performance of the stock price on account of real estate concerns, the company successfully proved again its exit and investment track record in FY11 making it a valuable investment idea. At CMP of Rs.38 ILFSVC with a dividend yield of ~4% is valued at MCap/AUM of 4.8% & 4.1% FY12E & FY13E respectively. In the absence of any near term triggers and the concerns on returns from their huge real estate investments, we downgrade the stock from BUY to HOLD.