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SHARETIPSINFO >>Research Reports >> IFCI (19-12-2008)

COMPANY OVERVEIW:
Industrial Finance Corporation of India (IFCI) was established on 1st July, 1948 as first Development Financial Institution in the country to cater to the long term finance need of the Industrial sector.
It was in the late 1990`s IFCI lost its way and the business model failed. As most of the DFI`s changed themselves into commercial bank, IFCI kept on carrying its old legacy. The sectors to which IFCI made  lending  went under severe loss like steel, textile, chemical etc. Nothing was going right for this India’s first DFI. The cost of borrowing was also high as it could not go to the public like commercial bank’s were doing. Its balance sheet size shrinked from Rs22000 crore to just Rs 12000 crore. It went into severe red. IFCI had to stop lending. It was virtually living on government doles.
After ten long years of red, it came out with positive figure in 2006-07 when it posted a decent operating profit of Rs 1261 crore and a net profit of Rs 898 crore. It caught the market imagination when IFCI sold stake in NSE for 780 crores.
Once bitten twice shy, this proverb goes well with IFCI business in today’s circumstances. IFCI is taking small but firm step towards achieving leadership in the industry that it once had.

INSTITUTION PROMOTED BY IFCI:
Management and Development Institute (MDI).
ICRA (Sold through IPO last year).
Tourism and Finance Corporation of India(TFCI)
Institute for Labor Development (ILD).
Rashtriya Gramin Vikas Nidhi (RGVN).
Stock Holding corporation of India Ltd.
Discount and Finance House of India.
National Stock Exchange.
OTCEI.
Securities Trading Corporation of India.
LIC Housing Finance Ltd.
GIC Griha Vitta Ltd.
Bio-tech consortium Ltd.

MANAGEMENT VEIW FOR MAINTAING GROWTH:
Atul Rai CEO of IFCI said that their doors are now for new business. In the first half year Rs1300 Crore of fresh asset has been created. Atul Rai wants this tally to be at Rs2000 crore on conservative bases. He is also of view to keep on creating Rs2000 crore fresh assets for next 5 years. As IFCI has started fresh lending the income from this fresh lending could be seen in the last quarter of the FY2009.

IFCI GROWING THROUGH SUBSIDIARY:
VENTURE CAPITAL: IFCI venture capital arm IVCF announced the launch of three new funds with a corpus of about Rs 1000 crore. All the funds are in the emerging sector: the India Automotive Component Manufacturers Private Equity Fund, India Enterprise Development Fund for knowledge based project and Green India Venture Fund for companies developing clean developing mechanism. IVCF has invested in Jagdish Khattar`s Carnation Auto about Rs28 Crore.

FACTORING:
IFCI bought Mohan Export stake in Foremost Factoring to make its wholly owned subsidiary. Last year it made profit of Rs1 crore on turnover of Rs35 crore. This year it is targeting the turnover of Rs350 crore and profit of more than Rs4 crore. Factoring business is estimated to be anywhere around 40000 crore. IFCI is targeting to have at least 10% of this business.
IFCI Infrastructure Development Ltd.(IIDL): IFCI wants to encash the ongoing infrastructure boom. Since knows how to appraise the infrastructure it can create value for its shareholder. IFCI has good land bank in different places. It has also acquired considerable property through NPA resolution. IFCI is thinking of transferring some of its properties to IIDL at market rate.

FINANCIAL SERVICES:
from only having retailing business it foraying into merchant banking, wealth management, personal loan product and mutual funds. It is right now Rs3 CRORE company as is aiming it to grow to Rs100 Crore.

The subsidiaries are also looking at inorganic way to grow. They chalking out plan to engulf mid size companies.

IFCI STARTEGIC ASSET AND ITS VALUE:
Today IFCI is having reserve and surplus of around Rs 1400 crore. The NPA has come down to zero level. The Investment quoted and unquoted is estimated to be upward Rs 2000 crore. The IFCI tower in DELHI is estimated to be worth somewhere around Rs2500 Crore on conservative basis. Beside this IFCI have properties in several cities of India.

INVESTMENT RATIONAL:
Trading much below its book value.
Management is confident of maintaining Rs800 crore profits every year.
All bad news are discounted in the price at present.
NPA is near zero level.
Sitting on huge cash surplus.
Good real estate in Delhi and other places in India.
Getting banking license or any induction of strategic investor could add trigger to the stock.

SHAREHOLDING PATTERN:

FINANCIAL:

CHANGE IN TOTAL INCOME: CAGR IN TOTAL INCOME IS 17.06%.

CHANGE IN OPERATING INCOME:CAGR IN OPERATING INCOME IS 75.6%.

    
CHANGE IN NET PROFIT: FROM NEAGTIVE PROFIT IN 2005 AND 2006 COMPANY TURNAROUND TO MAKE 1000 PLUS PROFIT IN 2007. 

CHANGE IN EARNING PER SHARE:

VALUATION:
Stock is trading at 1.8X to trailing twelve months earning. The industry multiple is at 4x on very conservative basis. So the right valuation comes somewhere around Rs 60.This price is not taking into account the real estate and different licenses that IFCI is having. We expect sharp rally in the stock price. IFCI is worth buying at these levels.

CONCLUSION:
Investor could take position on this counter for medium to long term perspective. We expect the price to double from this level. The downside on this counter is very limited andupside potential is very huge. The risk reward ratio is in favor of buyers.

 

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