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IDFC
DÈj‡ vu
New FY12 guidance indicates clear asset growth moderation, driven by policy
inaction and a high interest rate regime. Better spreads and fee income potential
will be key considerations for business growth in FY12F. In our view, IDFC
remains a safe proxy for the structural infrastructure story. Maintain Buy.
FY12 guidance: Calibrated asset growth, cherry-picking new business
IDFC management guided for: 1) a cut in the loan growth target for FY12 to 15% yoy from
about 30% yoy, led by a combination of policy inaction across key infrastructure segments
and high interest rates; 2) a focus on deals with higher spreads and fee-income potential,
rather than targeting volume business; and 3) potential for some profit booking on principal
investments in FY12. Management also stated that IDFC has undergone a stress test and it
does not foresee any material risk to asset quality. We view managementís strategic shift
towards profitability over asset growth as prudent given the uncertain environment.
Management comments on issues specific to key infrastructure segments
1) Energy (44% of IDFCís outstanding disbursements): Power generation projects are facing
inadequate coal supply and increasing risks in projects that cater to state electricity boards
(SEBs), which are mired in financial problems (see Charts 4 and 5 and Table 3). A
combination of these factors is slowing business growth. 2) Transportation (24%):
Management expects the road transportation segment to gain momentum, based on projects
to be awarded by the National Highways Authority of India (NHAI) over the next year (see
Charts 6 and 7). However, the award of new projects may be staggered in line with the
financial capacity of the NHAI. 3) Telecom and IT (21%): According to management, IDFC
has exposure to top operators and tower companies in this space (see Chart 8).
We cut our earnings forecast and TP; we believe IDFC remains a safe India infra play
We cut our FY12-13 earnings forecasts by about 15-20%, largely driven by changes in asset
growth guidance and lower fee-based income. We value IDFCís stake in the National Stock
Exchange at Rs9 per share (see Table 4) and arrive at a revised SOTP-based target price of
Rs172. At our target price, IDFC would trade at about 2.5x FY12F adjusted (for goodwill)
book value. We believe the long-term structural infrastructure growth story remains intact, but
near-term concerns persist (as discussed above). Overall, we believe IDFC remains a safe
long-term India infrastructure proxy. We maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC
DÈj‡ vu
New FY12 guidance indicates clear asset growth moderation, driven by policy
inaction and a high interest rate regime. Better spreads and fee income potential
will be key considerations for business growth in FY12F. In our view, IDFC
remains a safe proxy for the structural infrastructure story. Maintain Buy.
FY12 guidance: Calibrated asset growth, cherry-picking new business
IDFC management guided for: 1) a cut in the loan growth target for FY12 to 15% yoy from
about 30% yoy, led by a combination of policy inaction across key infrastructure segments
and high interest rates; 2) a focus on deals with higher spreads and fee-income potential,
rather than targeting volume business; and 3) potential for some profit booking on principal
investments in FY12. Management also stated that IDFC has undergone a stress test and it
does not foresee any material risk to asset quality. We view managementís strategic shift
towards profitability over asset growth as prudent given the uncertain environment.
Management comments on issues specific to key infrastructure segments
1) Energy (44% of IDFCís outstanding disbursements): Power generation projects are facing
inadequate coal supply and increasing risks in projects that cater to state electricity boards
(SEBs), which are mired in financial problems (see Charts 4 and 5 and Table 3). A
combination of these factors is slowing business growth. 2) Transportation (24%):
Management expects the road transportation segment to gain momentum, based on projects
to be awarded by the National Highways Authority of India (NHAI) over the next year (see
Charts 6 and 7). However, the award of new projects may be staggered in line with the
financial capacity of the NHAI. 3) Telecom and IT (21%): According to management, IDFC
has exposure to top operators and tower companies in this space (see Chart 8).
We cut our earnings forecast and TP; we believe IDFC remains a safe India infra play
We cut our FY12-13 earnings forecasts by about 15-20%, largely driven by changes in asset
growth guidance and lower fee-based income. We value IDFCís stake in the National Stock
Exchange at Rs9 per share (see Table 4) and arrive at a revised SOTP-based target price of
Rs172. At our target price, IDFC would trade at about 2.5x FY12F adjusted (for goodwill)
book value. We believe the long-term structural infrastructure growth story remains intact, but
near-term concerns persist (as discussed above). Overall, we believe IDFC remains a safe
long-term India infrastructure proxy. We maintain Buy.
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