India Infoline (IIFL) - Gaining traction; retain BUY.:: Kotak Sec,

Visit http://indiaer.blogspot.com/ for complete details �� ��


India Infoline (IIFL)
Banks/Financial Institutions
Gaining traction; retain BUY. India Infoline reported PAT of Rs540 mn for 2QFY11,
down 7% yoy, up 25% qoq and 14% above estimates. Uptrend in equity broking (on
the back of improving equity market volumes), finance business (given steady growth in
its loan book) and better-than-expected performance of the insurance distribution
business have driven earnings growth. We believe the buoyancy in capital markets and
rising equity market volumes will drive stock performance over the next few quarters.
We revise estimates; retain BUY with price target of Rs150.


Cash market volumes drive equity broking business
Equity broking business remains the key business driver for India Infoline and contributes about
60% of its PBIT. A 7% qoq growth in cash market volumes on BSE and NSE has driven a similar
growth in the IIFL’s broking income, its market share and commission yield was almost stable.
Investment banking business was subdued during the quarter.
Cash market volumes have moved up 14% mom in August 2010, 8% mom in September 2010
and further 8% mom in October 2010 MTD. We expect the trend to remain strong. We are
factoring 10% qoq growth for 3QFY11E despite assuming a decline in volumes in December—in
line with annual trend.
Better-than-expected performance of insurance distribution business
IIFL’s income from distribution (primarily insurance distribution business) increased to Rs507 mn
from Rs417 mn in 1QFY11. APE collections were up 61% yoy and almost stable qoq.
IIFL’s management has guided for stable revenues from this segment despite a significant change
in broking commissions post September 1 (implementation of new IRDA guidelines). According to
the management, higher volumes and better productivity will likely offset a decline in commission
rates. We believe that productivity will eventually improve though it is challenging to project nearterm
volumes. We are raising our estimate for insurance distribution income though we continue
to factor 33% yoy decline in this segment during 2HFY11E.