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IDFC announced weak earnings for 1Q FY12 with
substantial slowdown in approvals and disbursements
and continued pressure on fee income.
Management revised loan growth guidance down to a
low 15% yoy against 30-35% earlier. Also, management
mentioned that growth will be back ended.
On the back of two weak quarters of earnings and lower
guidance, we lower our EPS by 5% for FY12E and 4%
for FY13E. We lower our price target to Rs125 from
Rs142 as we lower earnings and target multiple to 1.2x
from 1.4x. We also downgrade to UNDERPERFORM.
We lower our earnings forecasts. We lower our EPS by
5% for FY12E and 4% for FY13E backed by two weak
quarters of earnings and lower guidance by management.
We expect net profit to grow 13% yoy but EPS growth to
slow to 3% due to the dilution last year.
Weak macro to weigh on earnings. Aggressive tightening
by the RBI, slowdown in government approval for project
loans and concerns on lending to the power sector have
coincided with IDFC’s huge capital raising. At the time of its
equity issue in Aug ’10, IDFC had guided to a balance sheet
growth of 30-35% pa over the next 3-4 years. However, the
guidance has now been lowered due to economic
pressures. This will continue to put pressure on IDFC’s
leverage, which means that RoE will remain subdued for
longer. In addition, spreads will remain volatile. While
spreads were resilient in 1Q FY12 given the qoq decline in
wholesale rates, we believe borrowing costs will rise again
in 2Q FY12 given the higher-than-expected tightening by
the RBI. Asset quality risks especially for loans to the power
sector for IDFC will also linger given issues of fuel linkage
and losses made by SEBs. IDFC has an exposure of 44%
to the power sector. We also expect pressure on fees to
sustain as we do not see any increase in private equity
AUMs in FY12E and we see volatility in investment banking
fees.
Lower price target: We lower our price target to Rs125
from Rs142 as we lower earnings and our target multiple to
1.2x from 1.4x. The multiple appears lower than other
financials but given the weak economic cycle, earnings
pressure and subdued RoE, we believe the multiple is
justified. We downgrade our rating to UNDERPERFORM
from IN-LINE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC announced weak earnings for 1Q FY12 with
substantial slowdown in approvals and disbursements
and continued pressure on fee income.
Management revised loan growth guidance down to a
low 15% yoy against 30-35% earlier. Also, management
mentioned that growth will be back ended.
On the back of two weak quarters of earnings and lower
guidance, we lower our EPS by 5% for FY12E and 4%
for FY13E. We lower our price target to Rs125 from
Rs142 as we lower earnings and target multiple to 1.2x
from 1.4x. We also downgrade to UNDERPERFORM.
We lower our earnings forecasts. We lower our EPS by
5% for FY12E and 4% for FY13E backed by two weak
quarters of earnings and lower guidance by management.
We expect net profit to grow 13% yoy but EPS growth to
slow to 3% due to the dilution last year.
Weak macro to weigh on earnings. Aggressive tightening
by the RBI, slowdown in government approval for project
loans and concerns on lending to the power sector have
coincided with IDFC’s huge capital raising. At the time of its
equity issue in Aug ’10, IDFC had guided to a balance sheet
growth of 30-35% pa over the next 3-4 years. However, the
guidance has now been lowered due to economic
pressures. This will continue to put pressure on IDFC’s
leverage, which means that RoE will remain subdued for
longer. In addition, spreads will remain volatile. While
spreads were resilient in 1Q FY12 given the qoq decline in
wholesale rates, we believe borrowing costs will rise again
in 2Q FY12 given the higher-than-expected tightening by
the RBI. Asset quality risks especially for loans to the power
sector for IDFC will also linger given issues of fuel linkage
and losses made by SEBs. IDFC has an exposure of 44%
to the power sector. We also expect pressure on fees to
sustain as we do not see any increase in private equity
AUMs in FY12E and we see volatility in investment banking
fees.
Lower price target: We lower our price target to Rs125
from Rs142 as we lower earnings and our target multiple to
1.2x from 1.4x. The multiple appears lower than other
financials but given the weak economic cycle, earnings
pressure and subdued RoE, we believe the multiple is
justified. We downgrade our rating to UNDERPERFORM
from IN-LINE.
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