IFCI still open to strategic investment offers

Q: How do you see the picture panning out? Do you expect to improve margins or even maintain them for the rest of the year? What kind of credit offtakes are you expecting?

A: We have built a creation of assets of about Rs 2,000 crore for each year into our business plan for the next five-years. This is necessary for us to be able to maintain the bottomline where it is. We should be able to keep our profit after taxes (PAT) around the same level. This is for the worst-case scenario.

Income from investments for this year is not going to be as high as it was last year when there was a major party. So that income would have to be made up from our fresh asset creation and from some other sources.

Our business imperative is to be able to create assets of about Rs 2,000 crore. We have sanctioned about Rs 1,000 crore already this year and disbursement of about Rs 320 crore has already been made. It sounds small in comparison to the target, but one must keep in mind that we had not been doing any business at all until the third quarter of 2007-08.

So this is just starting from scratch. Therefore, I feel confident that we should be able to clock the necessary topline growth to maintain our bottomline.

Q: If you can just dwell a little more on the quarter that has just gone by, there has been a fairly dramatic fall in both the profit as well as in the income. Can you take us through what went so seriously wrong?

A: During the same quarter in the previous year, there was an income tax refund of about Rs 135 crore and we don’t have that refund this year. So, Rs 135 crore of our bottomline can be adjusted in that sense.

Around this time last year, IFCI was still considered to be a beneficiary of the government assistance package, under which part of our liabilities were being serviced by the government. We made a conscious decision in the third quarter that further inflow of funds from the government may not be necessary and therefore we are not expecting any assistance from the government.

On this count again, there are about Rs 40 crore additional, by way of servicing of our liabilities. So, our bottomline needs an adjustment of about Rs 175 crore. Profit after tax is at about Rs 310 crore odd. One needs to subtract Rs 175 crore to actually arrive at the comparable figure. If you arrive at this comparable figure, our profits are actually 50% higher this year. The income tax refund will come some time in Q2. There is a significant upside in our results. But, it is not a part of the operations.

Q: What are you expecting by a way of refund in the second quarter and more importantly, if you are not getting more government munificence, if you have to raise from the market with 10-year going almost at 9.5%, your cost of funds is likely to shoot up significantly - won’t that impair your margins?

A: Yes, the cost of funds for IFCI has never been comfortable because in our line of business we are now not naturally poised to access low cost funds. The good part is that the bottomline was strong as compared to last year. The net profits of about Rs 1,021 crore, after a decade long disappointment on that score has gone to our liquidity position. Even in this quarter we have maintained a PAT of Rs 150 crore. So all this is going to make more and more liquidity available to us. We are a very strong entity and we are becoming stronger with each quarter. We would be able to access resources competitively.

On the other hand right now, there is no requirement either from the point of view of funds or loan, in which case we have a liquidity of more than Rs 3,500 crore with us. Secondly, the capital adequacy of this company today is above 19%. So one doesn’t really need to raise capital to boost ones capital adequacy because we are already way above the regulatory requirement of 10%. We don’t need funds right now.

But as and when we require liquidity, we would access the market. By that time hopefully the strong results that we have posting quarter after quarter, would bring us to the most competitive kind of situation that the market may expect and can offer.                

Q: Are there any concerns on the NPA front? Do you see a provision for doubtful debts increasing going forward?

A: I don’t see anything that will take us by surprise. Also, our provisioning has been very strong. All the standard assets so far have continued to remain standard. There is no problem with any of the standard assets.

If there is any eventuality or shock, we would still be able to take account of the strong provisioning because we stand on provisions of about Rs 800 crore, though I hope that that would not happen.