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Infrastructure Development Finance (BOM:532659) |
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WIKI ANALYSIS
IDFC operates as an infrastructure financing entity whose focus areas are energy, telecom, transportation and industrial and commercial projects. IDFC financed nearly 25% of the total infrastructure outlay in the country in FY09. Its expertise in the infrastructure sector and strong relationship with government and infrastructure sponsors provides it with a platform for facilitating private investment and public-private partnerships in infrastructure projects.
Signalling a significant slowdown in the private sector participation in infrastructure investment activity in the past fiscal, IDFC’s sanctions and disbursements fell significantly on a YoY basis in FY09. The institution concluded the fiscal with a high disbursement to sanction ratio of 78%. IDFC has clearly prioritised its goals into – liquidity, profitability and growth. This has resulted in the institution cutting back on its incremental disbursement despite sufficient capital adequacy (24% in FY09). Ability to re-price the matured loan agreements aggressively due times of tight liquidity in the markets has helped IDFC improve its NIMs to 3.1% (2.9% in FY08). The share of non-interest income to IDFC’s total income decreased from 47% in FY08 to 39% in FY09 due to lower treasury and investment banking income. IDFC continued to retain one of the best asset qualities in the sector and had 0.2% net NPA levels at the end of FY09.
IDFC is currently adequately capitalised and needs to maintain minimum CAR of 15% as per the RBI norms. The institution will remain cautious in terms of asset growth but is targeting its AUM (assets under management) to go up from US$ 2 bn currently to US$ 4 bn by FY12. The asset management fees are also expected to the biggest boost to the firm’s profitability.
| Consolidated numbers | ||||||
|
Rs (m) | 4QFY08 | 4QFY09 | Change | FY08 | FY09 | Change |
|---|---|---|---|---|---|---|
| Interest income | 7,670 | 9,561 | 24.70% | 27,951 | 36,264 | 29.70% |
| Interest expended | 4,491 | 5,420 | 20.70% | 14,829 | 20,812 | 40.30% |
| Net Interest Income | 3,179 | 4,141 | 30.30% | 13,122 | 15,452 | 17.80% |
| Net interest margin | 2.90% | 3.10% | ||||
| Other Income | 63 | (16) | (125.40%) | 113 | 104 | (8.00%) |
| Operating expense | 853 | 1,305 | 53.00% | 2,532 | 3,665 | 44.70% |
| Provisions and contingencies | 400 | 1,151 | 187.80% | 700 | 1,532 | 118.90% |
| Profit before tax | 1,989 | 1,669 | (16.10%) | 10,003 | 10,359 | 3.60% |
| Tax | 503 | 454 | (9.70%) | 2,480 | 2,782 | 12.20% |
| Effective tax rate | 25.30% | 27.20% | 24.80% | 26.90% | ||
| Profit after tax/ (loss) | 1,486 | 1,215 | (18.20%) | 7,523 | 7,577 | 0.70% |
| Net profit margin (%) | 19.40% | 12.70% | 26.90% | 20.90% | ||
| No. of shares (m) | 1,294 | 1,295 | ||||
| Book value per share (Rs)* | 47.7 | |||||
| P/BV (x) | 1.4 | |||||
- (Book value as on 31st March 2009)
| Cautious growth | ||||||
| (Rs m) | FY08 | FY09 | Change | |||
|---|---|---|---|---|---|---|
| Sanctions | 203,640 | 103,170 | (49.30%) | |||
| Disbursements | 120,060 | 80,850 | (32.70%) | |||
| D/S ratio | 59.00% | 78.40% | ||||
| Advances | 204,950 | 209,630 | 2.30% | |||
| Funds under management | ||||||
| 1QFY09 | 4QFY09 | Change | ||||
| Funds | US$ m | Rs m | US$ m | Rs m | ||
| IDFC Private Equity | 630 | 27,090 | 1,300 | 59,920 | 121.20% | |
| Fund I | 190 | 8,170 | 180 | 8,440 | 3.30% | |
| Fund II | 440 | 18,920 | 420 | 19,880 | 5.10% | |
| Fund III | 700 | 31,600 | ||||
| IDFC Project Equity | 523 | 22,470 | 870 | 35,890 | 59.70% | |
| IDFC AMC | 2,451 | 114,000 | 2,260 | 143,620 | 26.00% | |
| IDFC Investment Advisory | 33 | 1,430 | 20 | 740 | (48.30%) | |
| Total | 3,637 | 164,990 | 4,450 | 240,170 | 45.60% | |
Quarterly Result Analysis- Spetember '09
Performance summary
- Consolidated income from operations grows 9% YoY in 1HFY10, on the back of 3% YoY growth in advances. Disbursements grow by 5% YoY, approvals by 34% YoY in 1HFY10.
- Asset management fees increase 1.8 times, total asset under management (AUM) stands at Rs 342 bn at the end of September 2009.
- Net interest margins (NIM) improve from 3.2% in 1HFY09 to 3.5% in 1HFY10 due to lower funding costs.
- Non-interest income doubles in 1HFY10 due to higher investment banking and loan related fees.
- Bottomline grows by 25% YoY in both 2QFY10 and 1HFY10 despite higher provisioning.
| Consolidated numbers | ||||||
| Rs (m) | 2QFY08 | 2QFY09 | Change | 1HFY09 | 1HFY10 | Change |
|---|---|---|---|---|---|---|
| Income from operations | 18,083 | 20,121 | 11.30% | 9,397 | 10,198 | 8.50% |
| Interest expended | 10,086 | 10,388 | 3.00% | 5,219 | 5,121 | (1.90%) |
| Net Interest Income | 7,997 | 9,733 | 21.70% | 4,178 | 5,077 | 21.50% |
| Net interest margin | 3.20% | 3.50% | ||||
| Other Income | 87 | 168 | 93.10% | 68 | 145 | 113.20% |
| Operating expense | 1,938 | 2,102 | 8.50% | 1,019 | 1,241 | 21.80% |
| Provisions and contingencies | 107 | 194 | 81.30% | 58 | 98 | 69.00% |
| Profit before tax | 6,039 | 7,605 | 25.90% | 3,169 | 3,883 | 22.50% |
| Tax | 1,518 | 1,952 | 28.60% | 833 | 975 | 17.00% |
| Effective tax rate | 25.10% | 25.70% | 26.30% | 25.10% | ||
| Profit after tax/ (loss) | 4,521 | 5,653 | 25.00% | 2,336 | 2,908 | 24.50% |
| Net profit margin (%) | 25.00% | 28.10% | 24.90% | 28.50% | ||
| No. of shares (m) | 1,295 | 1,295 | ||||
| Book value per share (Rs)* | 52.1 | |||||
| P/BV (x) | 3.1 | |||||
- Book value as on 30th September 2009
What has driven performance in 2QFY10?
- With a reasonable pick-up in demand for funding for infrastructure investment activity in the past six months, IDFC saw its sanctions grow by 34% YoY. However, the growth in disbursements and loan book remained tepid at 5% and 3% YoY respectively. The institution had a historically low disbursement to sanction ratio of 50% in 1HFY10. IDFC has clearly prioritised its goals into – liquidity, profitability and growth. This has resulted in the institution cutting back on its incremental disbursement despite sufficient capital adequacy (24% in 1HFY10). While the loan growth is well within our estimates for FY10, IDFC will be targeting loan growth in the range of 15% to 20% in the medium term.
- Ability to borrow at cheaper rates has helped IDFC improve its NIMs to 3.5% (3.2% in 1HFY09). We had estimated the same at 3.0% for the full year.
- An interesting revelation by IDFC’s management in the conference call today was that with banks now having to spend more to penetrate into Tier III and IV cities, their systemic cost of funds and asset pricing is set to rise. Particularly so until the growth in advances pick up reasonably. This will ease the competitive pressure on IDFC’s asset book and also ease the pressure on its spreads.
- The share of non-interest income to IDFC’s total income increased from 16% in 1HFY09 to 27% in 1HFY10 due to higher treasury and investment banking income. The institution also clarified that in case of loans disbursed against shares of companies, a loan to value ratio of 2 times is maintained. The volatility in share prices have therefore not impacted IDFC’s asset book.
- Asset management fees doubled over the past 12 months and comprised 27% of IDFC’s total income in 1HFY10 (18% in 1HFY09). The same has grown with incremental revenues from private equity and asset management business (IDFC AMC). Investment banking and broking income grew by 36% YoY, loan related fees grew by 5% YoY in 1HFY10. The AMC related fees will, however, remain susceptible to the new SEBI regulations.
- The institution is currently adequately capitalised with CAR of 24% in 1HFY10 and needs to maintain minimum CAR of 15% by March 2011 as per the RBI norms. The operating costs for the institution have also increased by 22% YoY (cost to income ratio of 24%) with the additional employee intake. IDFC had 0.2% net NPA levels at the end of 1HFY10.
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