IFCI Limited

May 27, 2010

Ratings We have reviewed 4QFY10 results of IFCI. Acceleration in

LTP 51 Recommendation BUY recovery rate has brought the institution back on track. Fresh
Target 76 Risk HIGH
sanctions and disbursement has started growing at a very
high pace. We retain ‘BUY’ on IFCI and upgrade our one
Bloomberg Consensus
(BUY/HOLD/SELL) 01 / 00 / 00 year target price to Rs 76/- per share.
• Results broadly in line with expectations; PAT up 2%
Sensex Nifty Bankex
YoY for FY10 driven by higher operating profits which
16,388 4,917 10,250
Codes
have grown by 12%
BSE NSE Bloomberg Reuters • NIMs flat at 1.8% for FY10 against similar margins last
500106 IFCI IFCI IB IFCI.BO year, however it has significantly improved from 0.5% in
FY08.
Sensex IFCI
52 Wk: Hi/Lo 18,048/10,962 61.15/37.10 • Retain ‘BUY’ with revised TP to Rs 76
Life High 21,207-Jan 08 121.20-Dec 07
Company Update

P/E 19.78 5.59

IFCI has since last three years turned into positive profits and
P/BV 3.47 1.19 networth. Fresh sanctions and disbursals are in full swing.
Dividend Yield (%) 1.16 1.63 Total approvals increased in FY10 to Rs 70bn as against Rs
Mkt Cap (INR Mn) 58,711,235 37,482 40bn previous year. Similarly, total disbursements improved
Equity (INR Mn) - 7,378 to Rs 60bn as against Rs 33bn last year. IFCI has a very
* - TTM standalone basis Capitaline
comfortable capital adequacy ratio of 17.9%. It can easily
grow at an accelerated rate without raising fresh capital. It
Share Holding Pattern % Dec-09 Mar-10
Foreign 13.95 14.04
continues on plan to rope in a strategic partner which will
Institutions 32.68 32.28 not only bring in capital to strengthen the balance sheet, but
Corporate 14.32 12.80 also bring in the required expertise to expand its reach in the
Public & Others 39.05 40.88 financial services gamut.
Valuations
Returns % Abs Relative to
Perf Sensex Bankex Descriptions INR Mn
1 Month 0.40 7.78 7.84 Total Assets excluding deferred tax asset as on FY10 167,850
3 Months 6.83 6.01 0.20
Gain/(Loss) accrued on quoted Investments 5,564
1 Year 5.24 -12.54 -25.31
NSE profit accrued (5.44% stake) 5,770
Recovery of NPA (assuming 40% recovery rate) 15,016
Relative Price Performance 194,200
150 IFCI Sensex Total Liabilities as on FY10 135,620
Preference Shares 2,640
Net Assets 55,940
P/BV Multiple 1.0
125
Fair Value 55,940
Number of Equity Shares (Mln) 738
Fair Value Per Share (INR) 76.0
100
Financial Summary (Standalone)
(INR Mn) FY2008 FY2009 FY2010
Total Income 21,114 14,845 16,793
75
Operating Profit 11,310 5,959 6,675
May-09 Nov-09 May-10
Profit After Tax 10,206 6,561 6,709
Analyst: Hatim Broachwala EPS (INR) 15.2 8.6 9.1
Email: hatim@kslindia.com BV (INR) 38.0 44.5 58.9

For private circulation only. Please read the Important Disclosure at the end of the report.
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This report is intellectual property of Khandwala Securities Ltd; queries on this report may be directed to Head of Research at research@kslindia.com
Khandwala Securities Limited

Sanctions/Disbursals Soaring
Fresh sanctions and disbursals are in full swing. Total approvals
increased by 75% in FY10 to Rs 70bn as against Rs 40bn previous year.
Similarly, total disbursements improved by 83% in FY10 to Rs 60bn as
against Rs 33bn last year. Income from core business will have to
accelerate to support bottom-line, as proceeds from recovery of bad
loans will decrease along with decrease of Gross NPA base.

80 (INR Bn) Sanctions Disbursals

60

40

20

0
FY07 FY08 FY09 FY10

Stable Margins NIMs are flat at 1.8% for FY10 against similar margins in FY09;
however it has significantly improved from 0.5% in FY08.
Management expects NIMs to improve to 2.6% in FY11 and 2.8% in
FY12.

2 (%)

-1

-2
FY07 FY08 FY09 FY10

Recovery process to accelerate
With a rebound in economic activity, we expect NPA recoveries to
accelerate. We have factored 40% recovery from NPA. Gross NPAs
have scaled down 26% to Rs38bn in FY10, on the back of accelerated
recovery of NPA. Net NPAs as of March 10 were Rs0.5bn. Provision
coverage ratio of 98% exceeds the regulatory stipulation of 70% by a
healthy margin and eliminates future risk of provisioning and impact
on profitability.

IFCI Limited 2
May 27, 2010
Khandwala Securities Limited

Gross NPA Net NPA Provision Coverage Ratio (RHS)

100 (INR Bn) (%) 105

75 100

50 95

25 90

0 85
FY06 FY07 FY08 FY09 FY10

Well Capitalized IFCI has a very comfortable capital adequacy ratio of 17.9%. It can
easily grow at an accelerated rate without raising fresh capital. It also
complies the required capital adequacy of 15% by March 2011, as
proposed by RBI. Judicious use of capital will provide adequate
cushion for further leverage.

22 (%)

11

-11

-22
FY07 FY08 FY09 FY10

Banking license would provide
further upside
In a bid to make our financial system more sound, regulator might
decide to issue banking license to NBFC. Once it happens, IFCI would
be in all scenario most probable beneficiary. Once converted in to a
bank, cost of funds would significantly come down and would cater to
capital need to expand its loan book.

Other non-fund based activities In addition to normal lending activity, it has started focusing on
private equity participation, project development and other advisory
service. It plans to offer products, which banks are restricted like
promoter’s funding, take-out finance and debt swapping.

Investment in Subsidiaries It had invested Rs 382 cr in its various subsidiaries including IFCI
Financial services Ltd, IFCI Venture Capital Funds, IFCI Infrastructure
development Ltd and IFCI Factors Ltd.

IFCI Limited 3
May 27, 2010
Khandwala Securities Limited

Performance of Subsidiaries Subsidiaries – PAT (INR Mn) FY2008 FY2009 FY2010

IFCI Financial Services 16.2 1.9 21.2
IFCI Venture Capital Funds 12.0 25.3 49.4
IFCI Infra Development Ltd 0.1 4.9 40.0
IFCI Factors Ltd 5.8 27.8 105.9
MPCON 4.9 5.3 5.6

Financial Summary Descriptions (INR Mn) FY2008 FY2009 FY2010

Total Income 21,114 14,845 16,793
Cost of Borrowing 8,210 7,901 8,912
Other Operating Cost 1,590 984 1,207
Operational Profit 11,310 5,959 6,675
Profit Before Tax 16,680 10,101 11,153
Profit After Tax 10,200 6,571 6,709

Equity Paid Up 7,624 7,624 7,378

Reserves 21,350 26,320 36,080

Key Ratios
EPS (INR) 15.2 8.6 9.1
Book Value (INR) 38.0 44.5 58.9

NIMs (%) 0.5 1.8 1.8

RONW (%) 40.0 19.3 15.4
CRAR (%) 17.4 19.7 17.9

Valuation Ratios
P/E 3.3 5.8 5.5
P/BV 1.3 1.1 0.8

IFCI Limited 4
May 27, 2010
Khandwala Securities Limited

Analyst Certification
Each of the analyst(s) named certify, with respect to the companies or securities they analyse
that: (1) all the views expressed in this report accurately reflect his/her/their personal views
about any and all of the subject companies and securities; and (2) no part of his/her/their
compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report.

KSL Ratings
Target Price refers to one year unless specified; LTP: Last Trading Price
BUY: Expected return >15%
ADD: Expected return 0-15%
REDUCE: Expected decline 0-15%
SELL: Expected decline >15%

Company Risk is based on the systematic risk of the stock. (1-year Beta)
HIGH: >1.2
MEDIUM: 0.8-1.2
LOW: < 0.8

Name Designation Sectors E-mail

EQUITY RESEARCH TEL. NO. +91 22 4076 7373 FAX +91 22 4076 7378
Ashok Jainani VP, Head Research Market Strategy ashokjainani@kslindia.com
Dipesh Mehta Sr. Research Analyst IT, Telecom dipesh@kslindia.com
Hatim K Broachwala Research Analyst BFSI hatim@kslindia.com
Vinay Nair Research Analyst Energy vinay.nair@kslindia.com
Giriraj Daga Research Analyst Metals & Mining, Cement giriraj@kslindia.com
Kruti Shah Research Associate Economics kruti.shah@kslindia.com
Aditya Shekhawat Research Associate Autos aditya.shekhawat@kslindia.com
Dinesh Bhatia Research Associate Technical Analysis dinesh.bhatia@kslindia.com
Sandeep Bhatkhande Research Associate Publishing sandeep@kslindia.com
Lydia Rodrigues Research Executive Data Mining lydia@kslindia.com

IFCI Limited 5
May 27, 2010
Khandwala Securities Limited

IND IA
Name Designation Sectors E-mail
INSTITUTIONAL DEALING TEL NO. +91 22 4076 7342-47/56 FAX NO. +91 22 4076 73 77-78
Biranchi Sahu Head Institutional Equity bsahu@kslindia.com
Gopi Doshi Senior Dealer Institutional Equity gopi.doshi@kslindia.com
Mayank Patwardhan Dealer Institutional Equity mayank.patwardhan@kslindia.com
Bhadresh Shah Dealer Institutional Equity bhadresh.shah@kslindia.com

PRIVATE CLIENT GROUP TEL NO. +91 22 4200 7300 FAX NO. +91 22 4200 7399
Subroto Duttaroy General Manager Equity & PMS subroto@kslindia.com

BRANCH OFFICE (PUNE) TEL NO. +91 20 2567 1404/06 FAX NO. +91 20 2567 1405
Ajay G Laddha Vice President ajay@kslindia.com

Head Office Corporate Office Branch Office

Khandwala Securities Limited
Vikas Building, Ground Floor,
Green Street, Fort,
MUMBAI 400 023.
Tel. No. +91 22 4076 7373
Fax No. +91 22 4076 7377/78
E-mail: research@kslindia.com
Logon to www.kslindia.com
TruMonee Financial Limited
1st Floor, White House Annexe,
White House, 91, Walkeshwar Road,
Walkeshwar, MUMBAI – 400 006
Tel No.: +91 22 4200 7300
Fax No.: +91 22 4200 7399
Email: advice@trumonee.com
www.trumonee.com
Khandwala Securities Limited
C8/9, Dr. Herekar Park,
Off. Bhandarkar Road,
PUNE 411 004
Tel. No. +91 20 2567 1404/06
Fax. No. +91 20 2567 1405
Email: pune@kslindia.com

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Always follow stop losses to avoid larger losses.
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IFCI Limited 6
May 27, 2010