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IDFC: Building muscle power and reach

Akash Joshi  |  Mumbai 

IDFC

Increased funding of projects and a wider operational base have enabled the company to position itself as a premier finance firm.

Infrastructure Development Finance Corporation (IDFC) is being closely watched by many sections of the industry. With growth prospects plateauing in most sectors/companies, IDFC is expected to accelerate on the growth path.

Like a typical growth stock, the scrip rose when the company announced its fund-raising plans, and even more when it actually managed to raise around Rs 2,654 crore from the qualified institutional investors. This will entail into an equity dilution of around 12 per cent, which will allow the company to borrow more and generate business, reckon analysts. The current debt-to-equity ratio of around 3.9:1 is extremely comfortable for a company that has been designated as an ‘infrastructure finance company’ within the non-banking finance company classification. This will help the company get finance on a priority basis at lower costs, which will keep high net interest margins above three per cent levels.

It has also grown its business by around 22 per cent in FY10, taking the loan book to around Rs 25,000 crore. While doing this, it has maintained the asset quality; net non-performing assets (NPAs) were 0.2 per cent of its advances and gross NPAs stood at 0.3 per cent during the period. This is an enviable track record, reckon analysts, especially since the company has also increased its provisioning.

IDFC has a wide bouquet of offerings through its subsidiaries, and is firmly entrenched in asset management, stock broking, investment banking and private equity. The company’s non-interest income increased 75 per cent year-on-year to Rs 282 crore in FY10. However, the company needs to quickly diversify its sectoral exposure, as the energy sector accounts for around 45 per cent of its exposure, which could create operational risks.

Also, the company trades at around three times its book value and is at a 50 per cent premium to peers. The 12 per cent equity dilution will have an impact on the return on equity; hence, a strong price upswing is not expected at the moment. But, a visible growth in disbursals and earnings could prove this theory otherwise.

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First Published: Wed, June 30 2010. 00:02 IST
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