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UBS Investment Research
Infrastructure Development Finance
O perating numbers in line
Event: Q1 numbers in line
IDFC reported PAT of Rs 3.1 bn (down 6% Y/Y) which was in line with
expectations however Net operating income (ex investment gains) was better than
expected due to stable NIMs. Disbursements and approvals declined sharply given
IDFC’s cautious stance, loan book growth was flat q/q. Non interest income
declined 19% y/y due to weak IB/broking fees and 15% decline in loan related fee.
Cost to income was stable at 20% while capital gains booked were minimal. In
summary core performance was in line with expectations.
Impact: Revising estimates on lower loan growth, investment profits
Slowing investment cycle and uncertainty around infrastructure development has
moderated growth outlook; we revise our loan growth estimates downwards from
23%/22% in FY12/13 earlier to 19%/21% now. We cut our FY12 /FY13 estimates
by 7%/4% respectively on account of lower loan growth and investment gains.
Action: Maintain Neutral, Macro challenges persists
We expect earnings momentum will be weak for IDFC in FY12 given loan growth
of 15-20%, slight compression in spreads and weak non interest income.
Valuations which are at a discount to 5 year history at 13xFY12 earnings and
1.4xFY12 book are pricing in the slowdown to an extent but in our view a pick up
in loan growth and ease in wholesale rates will be necessary to drive a re-rating.
Valuation: PT of Rs 160
We value the stock using sum of the parts method. At our price target the stock
trades at 1.8 FY12E book and 15x FY12E earnings.
Infrastructure Development Finance
Infrastructure Development Finance was established in 1997 as a specialised
finance company that would focus on the infrastructure sector. As of 30
September 2009, the company had a loan book of Rs220bn and an asset base of
Rs320bn.
Statement of Risk
A sharp rise in interest rates and unfavourable changes in government policy
remain the key risks to infrastructure sector investment growth. A sharp rise in
interest rates can also adversely affect asset quality. High interest volatility and
tight liquidity can negatively affect lending margins for a wholesale borrower
such as IDFC. A significant portion of non-interest income is contributed by
gains on equity investments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Infrastructure Development Finance
O perating numbers in line
Event: Q1 numbers in line
IDFC reported PAT of Rs 3.1 bn (down 6% Y/Y) which was in line with
expectations however Net operating income (ex investment gains) was better than
expected due to stable NIMs. Disbursements and approvals declined sharply given
IDFC’s cautious stance, loan book growth was flat q/q. Non interest income
declined 19% y/y due to weak IB/broking fees and 15% decline in loan related fee.
Cost to income was stable at 20% while capital gains booked were minimal. In
summary core performance was in line with expectations.
Impact: Revising estimates on lower loan growth, investment profits
Slowing investment cycle and uncertainty around infrastructure development has
moderated growth outlook; we revise our loan growth estimates downwards from
23%/22% in FY12/13 earlier to 19%/21% now. We cut our FY12 /FY13 estimates
by 7%/4% respectively on account of lower loan growth and investment gains.
Action: Maintain Neutral, Macro challenges persists
We expect earnings momentum will be weak for IDFC in FY12 given loan growth
of 15-20%, slight compression in spreads and weak non interest income.
Valuations which are at a discount to 5 year history at 13xFY12 earnings and
1.4xFY12 book are pricing in the slowdown to an extent but in our view a pick up
in loan growth and ease in wholesale rates will be necessary to drive a re-rating.
Valuation: PT of Rs 160
We value the stock using sum of the parts method. At our price target the stock
trades at 1.8 FY12E book and 15x FY12E earnings.
Infrastructure Development Finance
Infrastructure Development Finance was established in 1997 as a specialised
finance company that would focus on the infrastructure sector. As of 30
September 2009, the company had a loan book of Rs220bn and an asset base of
Rs320bn.
Statement of Risk
A sharp rise in interest rates and unfavourable changes in government policy
remain the key risks to infrastructure sector investment growth. A sharp rise in
interest rates can also adversely affect asset quality. High interest volatility and
tight liquidity can negatively affect lending margins for a wholesale borrower
such as IDFC. A significant portion of non-interest income is contributed by
gains on equity investments.
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