TFCI :: Management meeting takeaways: On a strong footing :: Centrum

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Management meeting takeaways: On a strong footing



We interacted with the senior management of Tourism Finance
Corporation of India (TFCI) at a road show. With the government set to
revive tourism in India, TFCI with its core competency in funding the
sector is on a strong footing. Management guided for faster growth in
the next phase of transformation where it will finance budget hotels
in tier-I / tier-II cities and buy out from Banks. Healthy margin
profile (aided by adequate ALM), limited asset quality risk and
superior 4.4% RoA profile are key strengths. While RoEs have been on
the lower side, with healthy capital position and growth revival,
these are expected to inch upwards. Stock trades at 1.2x FY14ABV

$ Guides for faster growth: TFCI with its core competency (presence of
over 25-years), strong due-diligence process and emphasis at reviving
tourism sector in India is well-positioned to leverage on the growth
opportunity in the hospitality sector. 85-90% of the loan portfolio is
for the hotels mostly in private sector. 90% of the projects are
operational. Management has guided for faster growth that will
primarily be led by a) financing of budget hotels / resorts in tier-I
/ tier-II cities and b) buy out loan portfolio from Banks in its next
phase of transformation. Average ticket size stood at Rs300mn.

$ Traction visible; limited NPA adds further comfort: After growth
consolidation in 2 years, TFCI under new management shows increased
traction. H1’15 sanctions / disbursements were at Rs4.2bn / Rs3bn (vs
Rs6.8bn / Rs3.5bn respectively for FY14). It has a sanction pipeline
of Rs3bn due for board approval in Dec’14 and expects FY15E overall
sanctions of over Rs10bn. Asset quality risks remain limited and is
adequately provided for (carries excess provisioning). GNPA at Rs440mn
(end-H1’15) comprises two accounts and management expects resolution
of one of these accounts by end-FY15.

$ Enjoys superior RoA profile, RoE to inch upwards: With typical
long-tenure loan portfolio, TFCI has ensured adequate ALM management
through bond borrowings (90% of total). Strong rating profile (AA+ by
Brickworks) has enabled it to borrow at competitive rates and protect
margins at healthy levels. With limited costs (both operating and
credit costs) RoA has been in excess of 4.8% (avg) over FY11-14.
However, with excess capital (tier-I at 32.1% and overall CAR at 39%),
leverage has remained on the lower side and is reflected in 13.8% RoE
(avg) over the same time-frame. With growth revival, the same is
expected to inch upwards.

$ Valuations and view:  We believe valuations at 1.2x FY14ABV, in the
context of improved growth visibility, new leadership (more
importantly independent decision making process), superior margin
profile, healthy RoA’s and limited asset quality risk are on the lower
side of the band and merits re-rating. Episodes of turn-around stories
in the past have seen huge multiple re-rating over a gradual period of
time as the investors realise the true potential. The key to same is
well managed growth with better visibility.  Key risks: Lower than
expected growth momentum or higher than expected asset quality risk
can deter the re-rating process.





Thanks & Regards