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IDFC (IDFC IN – Rs109 – BUY)
IDFC leveraged to India’s infra-investment cycle
1. 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.
India needs to invest
heavily in infrastructure
2. 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
3. While the longer-term opportunities are undoubtedly strong, near-tomedium
term challenges are likely to impact the investment cycle.
Multiple challenges in the
near-medium term
4. 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.
5. 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
6. 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.
Better underwriting
standards are helping to
sustain superior asset
quality
7. Moreover, higher share of operative projects (~70% of loans) implies that
majority of borrowers are regularly assessed for their repayment capacity.
8. However, there are pockets of risks in the infrastructure sector and some
projects may need restructuring of their borrowings.
9. 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
10. Management believes that spreads on lending are likely to be stable near
the current levels and improvement in competitive environment is a
positive.
Spreads on lending are
likely to be stable near
11. Fee income is linked to fresh lending and capital market activities and
hence likely to see lower growth in FY12.
12. 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 �� ��
IDFC (IDFC IN – Rs109 – BUY)
IDFC leveraged to India’s infra-investment cycle
1. 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.
India needs to invest
heavily in infrastructure
2. 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
3. While the longer-term opportunities are undoubtedly strong, near-tomedium
term challenges are likely to impact the investment cycle.
Multiple challenges in the
near-medium term
4. 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.
5. 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
6. 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.
Better underwriting
standards are helping to
sustain superior asset
quality
7. Moreover, higher share of operative projects (~70% of loans) implies that
majority of borrowers are regularly assessed for their repayment capacity.
8. However, there are pockets of risks in the infrastructure sector and some
projects may need restructuring of their borrowings.
9. 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
10. Management believes that spreads on lending are likely to be stable near
the current levels and improvement in competitive environment is a
positive.
Spreads on lending are
likely to be stable near
11. Fee income is linked to fresh lending and capital market activities and
hence likely to see lower growth in FY12.
12. 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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