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Growth slows, but quality intact
Presenting to investors, Mr. Vikram Limaye (ED) and Mr. Sunil Kakar
(Group CFO) highlighted that bottlenecks in India’s infrastructure will
drive a strong investment cycle over 5-10 years. However, a combination
of issues (policy, fuel and interest rates), may impact in the near-medium
term and may result in slower loan growth for IDFC in FY12. Management
believes that asset quality and coverage levels are high, but some
projects may need to restructure loans. Spreads may be stable at current
levels, but fee growth could be lower.
IDFC leveraged to India’s infra-investment cycle
Management highlighted that India faces significant infrastructure bottlenecks
in most sectors, especially power and transportation, which will require a
sizeable investment over next 5-10 years. IDFC will be able to leverage on
these opportunities as it is present across sectors as well as value chain and it
focuses on funding the private sector whose share in total capex is rising.
Multiple issues will result in slower investment in FY12
While the longer-term opportunities are undoubtedly strong, near-to-medium
term challenges are likely to impact the investment cycle. The management
believes that new project conceptualisation has slowed considerably due to a
combination of multiple factors including (1) changes in environment policies,
(2) allegation of corruption charges, (3) issues in availability of key fuels- coal
& gas and (4) high commodity prices & interest rates. This is likely to impact
IDFC’s loan growth in FY12 which management believes is likely to be in the
range of 15-20%, compared to growth of 50% in FY11.
Asset quality largely stable
Management highlighted that even though IDFC’s exposure to the private
sector is high, better underwriting standards are helping it to sustain superior
asset quality. Moreover, higher share of operative projects (~70% of loans)
implies that majority of borrowers are regularly assessed for their repayment
capacity. However, there are pockets of risks in the infrastructure sector and
some projects may need restructuring of their borrowings. IDFC has a strong
asset quality with gross NPA ratio of 20bps of loans and high coverage ratio of
8.5x of NPLs which will also cushion earnings against asset quality risks.
Steady margins and lower fees; expect profit on investments
Management believes that spreads on lending are likely to be stable near the
current levels and improvement in competitive environment is a positive. Fee
income is linked to fresh lending and capital market activities and hence likely
to see lower growth in FY12. IDFC is likely to consummate the sale of stake in
IDFC AMC to Natixis which may result in some gains on investments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth slows, but quality intact
Presenting to investors, Mr. Vikram Limaye (ED) and Mr. Sunil Kakar
(Group CFO) highlighted that bottlenecks in India’s infrastructure will
drive a strong investment cycle over 5-10 years. However, a combination
of issues (policy, fuel and interest rates), may impact in the near-medium
term and may result in slower loan growth for IDFC in FY12. Management
believes that asset quality and coverage levels are high, but some
projects may need to restructure loans. Spreads may be stable at current
levels, but fee growth could be lower.
IDFC leveraged to India’s infra-investment cycle
Management highlighted that India faces significant infrastructure bottlenecks
in most sectors, especially power and transportation, which will require a
sizeable investment over next 5-10 years. IDFC will be able to leverage on
these opportunities as it is present across sectors as well as value chain and it
focuses on funding the private sector whose share in total capex is rising.
Multiple issues will result in slower investment in FY12
While the longer-term opportunities are undoubtedly strong, near-to-medium
term challenges are likely to impact the investment cycle. The management
believes that new project conceptualisation has slowed considerably due to a
combination of multiple factors including (1) changes in environment policies,
(2) allegation of corruption charges, (3) issues in availability of key fuels- coal
& gas and (4) high commodity prices & interest rates. This is likely to impact
IDFC’s loan growth in FY12 which management believes is likely to be in the
range of 15-20%, compared to growth of 50% in FY11.
Asset quality largely stable
Management highlighted that even though IDFC’s exposure to the private
sector is high, better underwriting standards are helping it to sustain superior
asset quality. Moreover, higher share of operative projects (~70% of loans)
implies that majority of borrowers are regularly assessed for their repayment
capacity. However, there are pockets of risks in the infrastructure sector and
some projects may need restructuring of their borrowings. IDFC has a strong
asset quality with gross NPA ratio of 20bps of loans and high coverage ratio of
8.5x of NPLs which will also cushion earnings against asset quality risks.
Steady margins and lower fees; expect profit on investments
Management believes that spreads on lending are likely to be stable near the
current levels and improvement in competitive environment is a positive. Fee
income is linked to fresh lending and capital market activities and hence likely
to see lower growth in FY12. IDFC is likely to consummate the sale of stake in
IDFC AMC to Natixis which may result in some gains on investments.
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