Jul 11, 2011, 06.32 PM | Source: Moneycontrol.com
KRChoksey is bullish on IFCI and has recommended buy rating on the stock with a target of Rs 80 in its July 11, 2011 research report.
, KRChoksey |
“IFCI posted margins of 2.2% in FY11 on the back of increase in its loan book and better asset quality. IFCI has shown sharp improvement in NIMs in last two years. The management is confident to maintain healthy NIMs going forward, where it’s expected to be maintained at ~2.8% to 3% in FY12. IFCI’s balance sheet grew meagerly by 3% between FY05-09 due to its increase is NPAs during that period. Due to the legacy issue, IFCI had Gross NPAs level of 74% on books in FY06. Post FY09, management’s main focus was to grow its balance sheet and reduce the NPAs. The balance sheet grew at 34.5% CAGR between FY09-11. IFCI’s has diversified its focus of borrowings. It has started borrowing from banks, supported by Government bonds. The shifting of its focus in borrowings has helped them in reducing its cost of funds by 20-30bps which led to the increase in its NIMs. The company got a nod to issue infrastructure bonds which would help in raising funds at low cost due to the better credit ratings.”
“Loan book grew at a CAGR of 41% over FY09-11 driven by increase in lending in Infrastructure (Power and others) which constitutes 18% of the total book, Iron & Steel (14%) and Banking & Finance (13%). Management is focusing more on Infrastructure as it has got the opportunity. Management expects ~25-30% growth in loan book in FY12 against 41.6% growth in FY11. Asset growth is largely funded through market borrowings. Power, roads, steel, real estate and banking, financial services & insurance contribute significantly to outstanding loan book. 40% of the loan book has legacy problems. Loan book’s duration is at 5+ years.”
“As a part of business restructuring, the management has laid sharper focus on improving profitability of subsidiaries companies such as IFIN – a retail and institutional broking arm, leveraging corporate relationship for institutional, syndication and advisory businesses. The management also expects good traction in advisory fee income going forward. At Rs 47, the stock is quoting at 0.78x FY13 book value and 3.82x FY13 earnings. Steady loan growth outlook, stable margins, development of real estates, reduction in cost of funds due to borrowing mix and hidden value of investment are key medium term positives for the bank. However, we recommend a ‘BUY’ on the stock with a price target of Rs 80,” says KRChoksey research report.
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