Accumulate IDFC; target of Rs 150: KRChoksey

KRChoksey is bullish on IDFC and has recommended accumulate rating on the stock with a target of Rs 150 in its August 21, 2012 research report.

“IDFC reported PAT of Rs380 crore growing 21% Y-o-Y in line with our expectation. NII increased 30% Y-o-Y and 7% Q-o-Q to Rs 629 cr aided by strong loan growth (4.1% Q-o-Q) and stable spreads. Non-interest income improved due stable loan related fees however performance in capital market linked businesses remained weak. Approval and disbursement were up 103% and 55% y-o-y respectively supported by refinancing opportunities. Asset quality remained stable; gross NPA and net NPA stood at 0.3% and 0.1% with total provision increasing significantly due to one off in the investment portfolio. Recent strong rally (22.5% up in last three months) in the stock leaves unfavorable risk-reward in near term. Downgrade to ACCUMULATE.”

“Net interest income showed healthy growth of 30% y-o-y supported by infra NII (30% Y-o-Y) & treasury (35% Y-o-Y). Lending business contributed ~ 82% of operating income during the quarter, whereas the share for non-interest income stood flat sequentially at 18% on the back of subdued capital market linked revenues while loan related fees grew sharply. Non-Interest Income increased 18% Y-o-Y & 5% Q-o-Q to Rs144 crore. Fee income from asset management, IB & securities broking remained subdued reflecting poor capital market conditions. We expect net interest income to grow 22% CAGR over FY12-14E driven by steady loan growth. Gross approvals and disbursement increased by 103% y-o-y and 55% y-o-y respectively driven by strong growth in refinancing space within the overall infrastructure finance. Loan book grew strongly 34% y-o-y and 4% q-o-q to Rs 50,892 cr driven by refinancing opportunity in telecom and transportation sector. We believe that IDFC’s strategy to focus on operating assets refinancing for balance sheet growth and optimum utilization of short term financing to take the benefit of the interest rate arbitrage will drive earnings in uncertain operating environment in infrastructure financing. We expect infra loan book to grow 20% CAGR over FY12-FY14e driven largely by road sector and telecom.”

“IDFC has performed reasonably in tough macro environment. We have tweaked our FY13 & FY14 earnings estimates upward to reflect strong core business and weak earnings from capital market linked businesses. We expect IDFC to deliver 17% CAGR in earnings over FY12-14 driven by core operation. At Rs140, the stock is trading at 1.4x FY14 book and 9.6x FY14 earnings. Integrated business model, strong management capabilities, healthy return ratios, well capitalized and strong domain knowledge and healthy asset quality are key value drivers for IDFC in our view. Recent strong rally (up 22.5% in last three months) in the stock leaves unfavorable risk-reward in near term.; hence we downgrade our investment rating on the stock from BUY to ACCUMULATE with TP of Rs150. Sharp acceleration in infrastructure investments coupled with better policy environment are upside risks to our call,” says KRChoksey research report. 

Public holding more than 90% in Indian cos

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