Hold IL&FS Investment Managers: LKP

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Hold IL&FS Investment Managers: LKP

LKP has maintained hold rating on IL&FS Investment Managers in its April 25, 2011 research report.

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LKP has maintained hold rating on IL&FS Investment Managers in its April 25, 2011 research report.

"ILandFS Investment Managers, the total income is up 9.8% YoY at Rs 563 million in Q4FY11. The total income for FY11 is up by 11% YoY at Rs 2012 million. The increase in total income is due to increase in AUM on account of amalgamation of SAAPL. As no new funds were raised in the last 2 years the total income has been flat YoY, the growth seen in the total income is mainly due to the merger of SAAPL with ILFSVC. On the back of a 17% 3 years CAGR growth in AUM; the total income is expected to show a modest 6% & 12% growth for FY12E & FY13E respectively."

"EBITDA grew by a mere 1.6% YoY to Rs 335 million in Q4FY11. The EBITDA Margin for Q4FY11 stood at 60.5% v/s 65.3% YoY. For full year FY11 EBITDA grew by 4% YoY to Rs 1182 mn and EBITDA Margin stood at 58.7% v/s 62.5%. The increased expenditure from the SAAPL amalgamation is the key reason for a sharp dip in the EBITDA Margins. Private Equity is a business completely dependent on Human Resource; hence, employee cost is the key expenditure for this business. On account of global economic weakness in the last 2 years employee compensation has been flat, hence in the current year management expects 15% rise in the employee cost. EBITDA Margins are thus expected to come down from 58.7% in FY11 to 55.6% in FY12E & 54.6% in FY13E. Thus the EBITDA is expected to grow at a mere 5% CAGR for 3 years between FY10-FY13E."

"ILFSVC currently has an AUM of USD 3.2 billion, the company is further planning to raise USD 1.4 bn in FY12E & USD 800-900 million in FY13E thereby crossing the USD 5 billion mark in the next 2 years. FY11 has been a very challenging year for the company with a successful record on 15 exits and 18 investments in a challenging economic environment. Despite a poor performance of the stock price on account of real estate concerns, the company successfully proved again its exit and investment track record in FY11 making it a valuable investment idea. At CMP of Rs 38 ILFSVC with a dividend yield of ~4% is valued at MCap/AUM of 4.8% & 4.1% FY12E & FY13E respectively. In the absence of any near term triggers and the concerns on returns from their huge real estate investments, we downgrade the stock from BUY to HOLD," says LKP Research Report.

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To read the full report click on the attachment