Buy IDFC; target of Rs 150: Motilal Oswal

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Buy IDFC; target of Rs 150: Motilal Oswal

Motilal Oswal is bullish on IDFC and has recommended buy rating on the stock with a target of Rs 150 in its January 11, 2012 research report.

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Motilal Oswal is bullish on IDFC and has recommended buy rating on the stock with a target of Rs 150 in its January 11, 2012 research report.

"IDFC, asset growth was muted in 1HFY12, with loans growing just 4% YTD (14% YoY) - the slowest in the last five years. However, we expect loan growth to pick up despite the uncertain environment, given IDFC's focused strategy to improve wallet share in existing projects. We have built in 18% loan CAGR (a conservative estimate) over FY12/13. Government intervention to address some key issues faced by the Indian infrastructure sector (which is highly likely) could significantly alter the growth outlook for IDFC."

"IDFC's loan book is fairly diversified with its exposure distributed across Energy (43%), Transportation (24%) and Telecom (22%). Though majority of its portfolio is under the Energy segment, Power Generation constitutes just 28% of its overall portfolio. Moreover, IDFC's exposure to power projects under construction is only 15%. While it has 7% exposure to IPP/Merchant Power, ~60% of the projects it is exposed to have linkage to captive mines. Moreover, factors like no direct exposure to SEBs, impeccable asset quality track record (with GNPA at ~20bp), and loan loss reserve of 1.6% provide comfort on the asset quality front. IDFC's spreads have returned to normalized levels of 2.2-2.4% from the peak of 2.7%. With (1) the interest rate cycle nearly peaking out, (2) wholesale rates stabilizing/cooling off, and (3) increased FII limit/lowering of lock-in period in bonds issued by IFCs resulting in relatively low cost borrowings, IDFC should be able to maintain a tight leash on its cost of funds. We expect IDFC to pass on the fall in cost of funds to borrowers, which will help to gain market share. Spreads are likely to remain stable at 2.2-2.4% over FY12/13."

"Monetary easing and expected government intervention to address the key issues faced by the Indian infrastructure sector could act as major catalysts in improving the growth and profitability outlook for IDFC, leading to its re-rating. Among the IFCs, IDFC is well poised (compared to peers) to tide through the current phase of moderation in economic growth. We believe riskreward is favorable and upgrade our rating to buy, with an SOTP-based price target of INR 150," says Motilal Oswal research report. 

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To read the full report click on the attachment