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IDFC
PRICE: RS.122 RECOMMENDATION: BUY
TARGET PRICE: RS.165 FY13E P/E: 10.2X; P/ABV: 1.3X
Q2FY12: Core earnings in line; however, strong capital gains
aided overall bottom-line growth.
q NII grew 32.9% YoY to Rs.4.97 bn during Q2FY12 on back of strong treasury
NII (Rs.590 mn in Q2FY12 as against Rs.150 mn in Q2FY11) along
with healthy growth in infrastructure segments (22.0% YoY). Net income
was up 59.5% YoY mainly aided by capital gains (Rs.2.59 bn in Q2FY12
as against Rs.200 mn in Q2FY11).
q Business momentum has been moderating since Q3FY11; during Q2FY12,
sanctions and disbursements were down by 63% and 68%, respectively.
Loan book witnessed ~14% YoY growth (4.8% QoQ); sequentially it
came slightly better than last quarter (Q1FY12) when it had remained
flat. Energy segment remained the main contributor to overall disbursement
(44%).
q Average spread (12 months rolling basis) improved ~10bps to 2.3% during
Q2FY12, however, it was flat YoY. Non-interest income was strong
and aided overall bottom-line growth on back of strong capital gains
(Rs.2.57 bn in Q2FY12 as against Rs.200 mn in Q2FY11).
q At CMP, IDFC is trading at reasonable valuation (1.3x its FY13E adjusted
book value). We maintain BUY on the stock with revised TP of Rs.165
(Rs.175 earlier) based on SOTP methodology where core business is valued
at Rs.140 (1.5x FY13 ABV) and Rs.25 for its subsidiaries and other
investments.
Core earnings came in line with our estimates; business momentum
has been moderating since Q3FY11.
NII grew 32.9% YoY to Rs.4.97 bn during Q2FY12 on back of strong treasury NII
(Rs.590 mn in Q2FY12 as against Rs.150 mn in Q2FY11) along with healthy growth
in infrastructure segments (22.0% YoY). Net income was up 59.5% YoY mainly
aided by capital gains (Rs.2.59 bn in Q2FY12 as against Rs.200 mn in Q2FY11).
Business momentum has been moderating since Q3FY11; during Q2FY12, sanctions
and disbursements were down by 63% and 68%, respectively. Loan book witnessed
~14% YoY growth (4.8% QoQ); sequentially it came slightly better than last quarter
(Q1FY12) when it had remained flat. Energy segment remained the main contributor
to overall disbursement (44%), while transportation and telecom segments contributed
23.2% and 20.6%, respectively.
Management also quantified the break-up of power exposure; out of total ~ 64% of
exposure to power generation, ~34% is under construction while another ~30% is
already operational. Out of the former 34% exposure, 14-15% is to coal/thermal
based plants, another ~8% to gas based plants and rest to the Hydro/renewable
based power generating plants.
Management has guided lower loan growth at ~15% for FY12 on back of prevailing
macro headwinds. We are also modelling ~15% loan growth for IDFC during FY12E,
as we believe second half being the busy season, they would not find any difficulty
in achieving this, even though its YTD loan growth (H1FY12) is only 4.4%. We also
believe lower repayment rate during current quarter (if similar trend continues)
would be handy even with moderate disbursement figures.
Average spread (on 12 months rolling basis) improved ~10bps to
2.3%; non-interest income came higher on higher capital gains
Average spread (12 months rolling basis) improved ~10bps to 2.3% during Q2FY12,
however, it was flat YoY. Non-interest income was strong and aided overall bottomline
growth on back of strong capital gains (Rs.2.57 bn in Q2FY12 as against Rs.200
mn in Q2FY11). Strong income from principal investment included Rs.2.41 bn of
capital gain from NSE stake sale (post sale stake at ~6.6%) and carry income of
Rs.0.16 bn.
Asset quality improved marginally; higher provision is more due
to equity rather than for NPAs.
Its asset quality has improved marginally both QoQ as well as YoY; gross NPA after
remaining unchanged for almost 5 quarters earlier, has declined marginally during
last two consecutive quarters (QoQ). Similarly, net NPA also improved both QoQ and
YoY.
In percentage terms, gross NPA improved to 0.19% at the end of Q2FY12 from
0.23% and 0.20% at the end of Q2FY11 and Q1FY12, respectively. Similarly, net
NPA also improved to 0.09% at the end of Q2FY12 from 0.12% and 0.10% at the
end of Q2FY11 and Q1FY12, respectively.
During Q2FY12, IDFC did higher provision (Rs.631 mn during Q2FY12 as against
Rs.399 mn during Q1FY12) on back of equity book rather than on NPAs. Management
also hinted that H2FY12, might see some restructuring (~2-3% of book),
which in our view would be manageable.
Valuation and Recommendation
We are modelling earnings to grow 17.3% CAGR during FY11-13E along with
healthy return profiles (RoA: 2.8%; RoE:~14%).
At CMP, IDFC is trading at reasonable valuation (1.3x its FY13E adjusted book
value). We maintain BUY on the stock with revised TP of Rs.165 (Rs.175 earlier)
based on SOTP methodology where core business is valued at Rs.140 (1.5x FY13
ABV) and Rs.25 for its subsidiaries and other investments.
IDFC remains our preferred pick in the infrastructure financing space and we continue
to maintain our positive outlook for the stock; however near term risks remain
for the stock on back of moderating sanctions & disbursement during last few quarters.
Risks and concerns
n Tightening of liquidity in the system may harden interest rates and resultantly impact
its spread. However, we opine that IDFC's IFC status will help contain cost
of funds leading to stable NIM.
n Moderation in infrastructure capex cycle and delay in project commissioning in
the backdrop of delay in land acquisition and environmental issues may impact
the business growth
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC
PRICE: RS.122 RECOMMENDATION: BUY
TARGET PRICE: RS.165 FY13E P/E: 10.2X; P/ABV: 1.3X
Q2FY12: Core earnings in line; however, strong capital gains
aided overall bottom-line growth.
q NII grew 32.9% YoY to Rs.4.97 bn during Q2FY12 on back of strong treasury
NII (Rs.590 mn in Q2FY12 as against Rs.150 mn in Q2FY11) along
with healthy growth in infrastructure segments (22.0% YoY). Net income
was up 59.5% YoY mainly aided by capital gains (Rs.2.59 bn in Q2FY12
as against Rs.200 mn in Q2FY11).
q Business momentum has been moderating since Q3FY11; during Q2FY12,
sanctions and disbursements were down by 63% and 68%, respectively.
Loan book witnessed ~14% YoY growth (4.8% QoQ); sequentially it
came slightly better than last quarter (Q1FY12) when it had remained
flat. Energy segment remained the main contributor to overall disbursement
(44%).
q Average spread (12 months rolling basis) improved ~10bps to 2.3% during
Q2FY12, however, it was flat YoY. Non-interest income was strong
and aided overall bottom-line growth on back of strong capital gains
(Rs.2.57 bn in Q2FY12 as against Rs.200 mn in Q2FY11).
q At CMP, IDFC is trading at reasonable valuation (1.3x its FY13E adjusted
book value). We maintain BUY on the stock with revised TP of Rs.165
(Rs.175 earlier) based on SOTP methodology where core business is valued
at Rs.140 (1.5x FY13 ABV) and Rs.25 for its subsidiaries and other
investments.
Core earnings came in line with our estimates; business momentum
has been moderating since Q3FY11.
NII grew 32.9% YoY to Rs.4.97 bn during Q2FY12 on back of strong treasury NII
(Rs.590 mn in Q2FY12 as against Rs.150 mn in Q2FY11) along with healthy growth
in infrastructure segments (22.0% YoY). Net income was up 59.5% YoY mainly
aided by capital gains (Rs.2.59 bn in Q2FY12 as against Rs.200 mn in Q2FY11).
Business momentum has been moderating since Q3FY11; during Q2FY12, sanctions
and disbursements were down by 63% and 68%, respectively. Loan book witnessed
~14% YoY growth (4.8% QoQ); sequentially it came slightly better than last quarter
(Q1FY12) when it had remained flat. Energy segment remained the main contributor
to overall disbursement (44%), while transportation and telecom segments contributed
23.2% and 20.6%, respectively.
Management also quantified the break-up of power exposure; out of total ~ 64% of
exposure to power generation, ~34% is under construction while another ~30% is
already operational. Out of the former 34% exposure, 14-15% is to coal/thermal
based plants, another ~8% to gas based plants and rest to the Hydro/renewable
based power generating plants.
Management has guided lower loan growth at ~15% for FY12 on back of prevailing
macro headwinds. We are also modelling ~15% loan growth for IDFC during FY12E,
as we believe second half being the busy season, they would not find any difficulty
in achieving this, even though its YTD loan growth (H1FY12) is only 4.4%. We also
believe lower repayment rate during current quarter (if similar trend continues)
would be handy even with moderate disbursement figures.
Average spread (on 12 months rolling basis) improved ~10bps to
2.3%; non-interest income came higher on higher capital gains
Average spread (12 months rolling basis) improved ~10bps to 2.3% during Q2FY12,
however, it was flat YoY. Non-interest income was strong and aided overall bottomline
growth on back of strong capital gains (Rs.2.57 bn in Q2FY12 as against Rs.200
mn in Q2FY11). Strong income from principal investment included Rs.2.41 bn of
capital gain from NSE stake sale (post sale stake at ~6.6%) and carry income of
Rs.0.16 bn.
Asset quality improved marginally; higher provision is more due
to equity rather than for NPAs.
Its asset quality has improved marginally both QoQ as well as YoY; gross NPA after
remaining unchanged for almost 5 quarters earlier, has declined marginally during
last two consecutive quarters (QoQ). Similarly, net NPA also improved both QoQ and
YoY.
In percentage terms, gross NPA improved to 0.19% at the end of Q2FY12 from
0.23% and 0.20% at the end of Q2FY11 and Q1FY12, respectively. Similarly, net
NPA also improved to 0.09% at the end of Q2FY12 from 0.12% and 0.10% at the
end of Q2FY11 and Q1FY12, respectively.
During Q2FY12, IDFC did higher provision (Rs.631 mn during Q2FY12 as against
Rs.399 mn during Q1FY12) on back of equity book rather than on NPAs. Management
also hinted that H2FY12, might see some restructuring (~2-3% of book),
which in our view would be manageable.
Valuation and Recommendation
We are modelling earnings to grow 17.3% CAGR during FY11-13E along with
healthy return profiles (RoA: 2.8%; RoE:~14%).
At CMP, IDFC is trading at reasonable valuation (1.3x its FY13E adjusted book
value). We maintain BUY on the stock with revised TP of Rs.165 (Rs.175 earlier)
based on SOTP methodology where core business is valued at Rs.140 (1.5x FY13
ABV) and Rs.25 for its subsidiaries and other investments.
IDFC remains our preferred pick in the infrastructure financing space and we continue
to maintain our positive outlook for the stock; however near term risks remain
for the stock on back of moderating sanctions & disbursement during last few quarters.
Risks and concerns
n Tightening of liquidity in the system may harden interest rates and resultantly impact
its spread. However, we opine that IDFC's IFC status will help contain cost
of funds leading to stable NIM.
n Moderation in infrastructure capex cycle and delay in project commissioning in
the backdrop of delay in land acquisition and environmental issues may impact
the business growth
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