Dear Sir/Madam,
IDFC was incorporated on January 30, 1997 on the recommendations of the Expert Group on Commercialization of Infrastructure Projects and was listed on the stock exchange (BSE & NSE) in August 2005. Since its inception, the company has been providing loan to Infrastructure projects and also engaged in the business of Merchant Banking, Asset Management, Private Equity and Broking business through its subsidiary. It is a conglomerate of 10 direct subsidiaries and 11 indirect subsidiaries. IDFC Foundation includes three Joint Ventures and two trusts. As on 31st December 2014, the company’s average Assets Under Management (AUM) was stood at INR52597 crores and its balance sheet crossed over INR70000 crores. The company has received many awards and recognition over the last few years. Recently, the company had got “in-principle” approval from the RBI to set up bank, which we believe that it may act as a growth driver in long term.
We Initiate Coverage on Infrastructure Development Finance Company Ltd. (IDFC) with a BUY rating. Our rating underpins the following-
• Key beneficiary of Government ‘s infrastructure revival plan
• Diversified loan portfolio
• Asset quality likely to improve
• More opportunity to increase loan book size
• Diversified liability franchise
• Rising Net Interest Income (NII)
• Net Interest Margin (NIM) is to improve
• Strong capital base
• Profitability continues to remain healthy
• Growing profitability boosted Return ratios and last but not least
• Operationally efficient Infrastructure Finance Company
Need of the hour
There is a need for a fast solution of the issue of stalled projects in which the Banks and NBFCs have a significant exposure. The new Government should focus on the investment front and should come out with attractive schemes like subvention on interest rate on timely payment of loan or fast execution of projects, setting up sector wise interest rates etc, for the respective manufacturer that may help removing the bottlenecks of the supply side. Consequently, the nation’s Current Account Deficit (CAD) and Fiscal Deficit may come down which may not only help in rupee appreciation against the USD but also improve the balance sheet of Indian corporate as well as Indian Banks.
Outlook
We believe moderate global economic recovery and the measures taken by the government is likely to revive domestic growth. Inflation, Current Account Deficit (CAD) and Fiscal Deficit have shown some improvement. Indian rupee may appreciate owing to various steps being taken by the Government and the RBI. The steps taken for the revival of investment, including progressive infrastructure de-bottlenecking is likely to increase capacity expansion and improve the ability of Indian companies to repay their loan. The infrastructure finance companies as well as Banks which are better placed are likely to generate better business and returns as the economy shows resilience of all the measures being taken.
Valuations
At the CMP of INR116.55, the stock is trading at TTM P/BV of 1.29x. The current valuations of 1.03x FY15E and 0.92x FY16E Book Value looks attractive. We recommend a BUY on the stock with a target price of INR148 (1.16x FY16E BV) with an upside potential of ~27% from the current level with an investment horizon of 12-18 months.
Regards,
Team Microsec Research
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IDFC was incorporated on January 30, 1997 on the recommendations of the Expert Group on Commercialization of Infrastructure Projects and was listed on the stock exchange (BSE & NSE) in August 2005. Since its inception, the company has been providing loan to Infrastructure projects and also engaged in the business of Merchant Banking, Asset Management, Private Equity and Broking business through its subsidiary. It is a conglomerate of 10 direct subsidiaries and 11 indirect subsidiaries. IDFC Foundation includes three Joint Ventures and two trusts. As on 31st December 2014, the company’s average Assets Under Management (AUM) was stood at INR52597 crores and its balance sheet crossed over INR70000 crores. The company has received many awards and recognition over the last few years. Recently, the company had got “in-principle” approval from the RBI to set up bank, which we believe that it may act as a growth driver in long term.
We Initiate Coverage on Infrastructure Development Finance Company Ltd. (IDFC) with a BUY rating. Our rating underpins the following-
• Key beneficiary of Government ‘s infrastructure revival plan
• Diversified loan portfolio
• Asset quality likely to improve
• More opportunity to increase loan book size
• Diversified liability franchise
• Rising Net Interest Income (NII)
• Net Interest Margin (NIM) is to improve
• Strong capital base
• Profitability continues to remain healthy
• Growing profitability boosted Return ratios and last but not least
• Operationally efficient Infrastructure Finance Company
Need of the hour
There is a need for a fast solution of the issue of stalled projects in which the Banks and NBFCs have a significant exposure. The new Government should focus on the investment front and should come out with attractive schemes like subvention on interest rate on timely payment of loan or fast execution of projects, setting up sector wise interest rates etc, for the respective manufacturer that may help removing the bottlenecks of the supply side. Consequently, the nation’s Current Account Deficit (CAD) and Fiscal Deficit may come down which may not only help in rupee appreciation against the USD but also improve the balance sheet of Indian corporate as well as Indian Banks.
Outlook
We believe moderate global economic recovery and the measures taken by the government is likely to revive domestic growth. Inflation, Current Account Deficit (CAD) and Fiscal Deficit have shown some improvement. Indian rupee may appreciate owing to various steps being taken by the Government and the RBI. The steps taken for the revival of investment, including progressive infrastructure de-bottlenecking is likely to increase capacity expansion and improve the ability of Indian companies to repay their loan. The infrastructure finance companies as well as Banks which are better placed are likely to generate better business and returns as the economy shows resilience of all the measures being taken.
Valuations
At the CMP of INR116.55, the stock is trading at TTM P/BV of 1.29x. The current valuations of 1.03x FY15E and 0.92x FY16E Book Value looks attractive. We recommend a BUY on the stock with a target price of INR148 (1.16x FY16E BV) with an upside potential of ~27% from the current level with an investment horizon of 12-18 months.
Regards,
Team Microsec Research
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