IFCI: Ugly duckling turns swan

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Idon't know how long superstar Shah Rukh Khan will take to discover a crorepati, but Dalal Street manufactured quite a few last week at the IFCI counter.

The stock rocketed up from a closing price of Rs 13.48 to an eight-year high of Rs 28.34 in a matter of seven trading sessions, rising 110 per cent.

An investor holding just one 12.50 January Call at Rs 1.25 a share, would have invested Rs 39,375, considering the huge size of the market lot of 31,500. On Thursday the same 12.50 January Call quoted at Rs 18.95, netting Rs 5,55,750 for the investor, a return of 1,416 per cent in seven sessions flat. No, there is no mistake. There is no decimal.

The adrenalin at the counter was the stake sale in National Stock Exchange (NSE). NYSE and Goldman Sachs among others bought 5 per cent each in the NSE. IFCI sold 7 per cent stake in the bourse for a cool sum of Rs 780 crore, which raked in close to Rs 12 per share. This found an instant reflection in the stock that zoomed.

There are other listed entities also like ICICI and PNB that sold a part of their shareholding in NSE but the effect on IFCI was the most as it was a penny stock.

The company still has another 5 per cent stock of NSE, which it has kept in its larder for rainy days. The wags on Dalal Street expect this unsold stock to fetch a much larger sum when it is eventually sold.

Fortunately for IFCI, all its investments in the past were in land intensive sectors like power and steel. The land sale at Sultanpur of Malvika Steel will also rake in the moolah for the company.

The Debt Recovery Tribunal has ordered the sale of assets by inviting tenders. The reserve price is Rs 194.59 crore but the 739.65 acre plot of land on Lucknow"� Varanasi National Highway Number 56 is likely to fetch a higher sum, considering that it is just 78 km from Lucknow. The last date for submission of tenders was December 21, 2006.

The company has a 21.6 per cent stake in ICRA, a rating agency floated in the year 1991. The company plans to sell its holding through an offer for sale. Even if the stock is priced at Rs 600 a share, which will mean a PE of 30 on expected 2007 earnings, the per share value for IFCI shareholders will be a paltry Rs 2, considering that the sale will rake in around Rs 120 crore.

The company has quoted investments of Rs 957 crore at market value. Unquoted equity of Rs 212 crore is held in various companies, like OTCEI, SHCIL and DFHI.

IFCI was the first development financial institution in the country, established in 1948 to cater to the long term financial needs of the industrial sector. Problems began in the year 1999-2000 when the company spilled red ink on its books.

As its cheaper line of credit began to dry up, the institution had to resort to costly funding aggravating the situation. The company had the rare distinction of posting a loss of Rs 3,230 crore on a turnover of Rs 1,109 crore in the year 2003-04. Losses dipped to Rs 324 crore in 2004-05 and further to Rs 74 crore in 2005-06.

In the June quarter this fiscal it posted a loss of Rs 15.60 crore but turned the corner in September with a profit of Rs 116 crore. But this was largely technical, as it has not been paying interest on its borrowings.

As per the last balance sheet, the company has NPAs worth Rs 3,950 crore, which need to be cleaned up. The institution is said to have wielded the broom this year, but to what extent it has been successful will be known only from this year's balance sheet.

All these factors are currently discounted in the share price. What is not discounted, however, is the price at which the knight in shining armour will take the stake. But that is another story.

Disclaimer: Financial advisory Anagram may have recommended stocks earlier at lower levels.