Infrastructure Development Finance Company
In great businesses
Infrastructure financing and asset management businesses will continue to be high growth businesses
| Buy | Infrastructure Development Finance Company |
| BSE Code | 532659 |
| NSE Code | IDFC |
| Bloomberg | IDFC@IN |
| Reuter | |
| 52-week High/Low | Rs 235 / 77 |
| Current Price | Rs 168 (as on 12 March 2008) |
Infrastructure Development Finance Company (IDFC) was established in 1997 as a private sector enterprise by a consortium of public and private investors and is a leading NBFC specialized in infrastructure finance in India. The company has a well-managed team of professionals with international and national experience from diverse professional backgrounds at the helm of affairs.
The company is on a threshold of sustained growth due to the huge growth of infrastructure lending due to heightened investments in the sector and value unlocking of its unquoted infrastructure investments.
A specialised intermediary in infrastructure financing
IDFC is positioned as a specialised intermediary in infrastructure financing, not only providing project finance but also arranging and facilitating the flow of private capital to infrastructure development by creating appropriate structures and financing vehicles for a wide range of market participants. The financial institution offers fund-based products including senior debt financing in the form of loans, debentures and securitised debt. It undertakes subordinated debt, preference capital and equity financing through proprietary investments in unlisted equity as well as public offers of infrastructure companies. It also offers non-fund-based products such as guarantees, debt syndication & advisory services on project and financial structuring.
The company's goal is to become the most profitable, most innovative, most influential and largest multi-product financier for the development of infrastructure in the country.
The company's main focus is Transport, Energy, Telecommunication and IT, and Industrial and Commercial infrastructure.
Strong relationships
Thus, IDFC's strategy has been tuned to driving both the size of the asset book as well as returns on investments. The Company strives to use its extensive domain knowledge to become a 'one-stop-shop' for infrastructure financing. In the process, IDFC has built strong relationships with the sponsors of infrastructure projects by working closely with clients - right from the pre-bidding stage to project commissioning. It's expertise and innovative ability enables the Company to continuously expand its range of products, and to participate in the more profitable parts of the capital structure of any infrastructure project like debt syndication, structured financing and equity participation.
The company's established relationship with the central government (which holds around 20% equity stake) gives it access to decision makers, which will help in playing a significant role in the direction of infrastructure policy in the country and keep a few steps ahead of competition (mainly from banks). In fact banks are tying up with IDFC to identify, assess and finance infrastructure projects.
Excellent year-to-date financial performance
For the quarter ended Dec'07, IDFC's consolidated total income surged 91% to Rs 766.70 crore. Income from operation increased by 90% to Rs 763.39 crore, while other income stood at Rs 3.31 crore against Rs 0.04 crore. However interest expense increased 73% to Rs 396.04 crore. Also other operating expenses including staff cost zoomed by 246% to Rs 62.93 crore respectively. These left the operating profit growth at 98% amounting to Rs 307.73 crore.
Provisions & contingencies advanced by 69% to Rs 7.30 crore and depreciation rose 21% to Rs 1.34 crore. This doubled the PBT to Rs 299.09 crore. After accounting for 189% increase in tax provision at Rs 77.42 crore, the PAT (before profit of Associates and adjustment for Minority Interest) stood at Rs 221.67 crore, up by 80%. Share of profit of Associates turned loss at Rs 0.15 crore compared to profit of Rs 2.15 crore and Minority interest stood at Rs 4.24 crore. Finally, PAT after minority interest stood at Rs 217.28 crore, up 74%.
For nine months ended Dec'07, Income from operations increased by 77% to Rs 2028.10 crore. Operating profit grew by 65% to Rs 835.22 crore on account 76% increase in Interest expense at Rs 1037.78 crore and whopping 225% increase in other expenses at Rs 160.11 crore. After accounting for Rs 30.06 crore provisions and contingencies (against Rs 1.58 crore) and Rs 3.79 crore of depreciation (up by 19%), PBT stood at Rs 801.37 crore, up 60%. Provision for tax increased 104% to Rs 197.70 crore leading the PAT before minority interest to advance by 50% to Rs 603.67 crore. After accounting for Rs 0.35 crore of Share of profit of Associates and Rs 11.28 crore of minority interest, PAT after minority interest increased by 44% to Rs 592.74 crore.
Developments during the quarter
During the nine months ended Dec'07 the Company has increased its equity interest from 33.33% to 79.80% in IDFC – SSKI securities private limited (formerly S. S. Kantilal Ishwarlal Securities Private Limited), a domestic mid-size investment bank based in Mumbai, consequent to which it has become a subsidiary company.
During the nine months ended Dec'07 the Company issued 3016583 equity shares of Rs. 10 each pursuant to exercise of stock options by certain employees under the employee stock option scheme.
The company has allotted 16,53,54,330 equity shares of Rs. 10 each at a premium of Rs. 117 per share on 11th July, 2007 pursuant to a Qualified Institutions Placement under Chapter XIII-A of Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000. Share issue expenses amounting to Rs. 23.03 crore have been adjusted against the Securities Premium Account in terms of Section 78 of the Companies Act, 1956.
In respect of 25,40,827 equity shares issued pursuant to the employee stock option scheme, the Company paid dividend of Re. 1 per share for the year 2006-07 during the half year ended 30th September, 2007 as approved by the shareholders at the Annual General Meeting held on 28th June, 2007.
Asset Management business has tremendous growth potential
IDFC is actively engaged in mobilising and managing third party funds for long-term equity investments in infrastructure. Though IDFC Private Equity Company Limited ('IDFC Private Equity'), a wholly owned subsidiary of IDFC, aims to secure attractive returns by providing equity-based risk capital to early stage and rapidly growing infrastructure focused companies. It is the investment manager of two funds - the India Development Fund (IDF-I) and the India Development Fund- II (IDF-II).
IDFC currently has $670mn FUM under private equity. One fund of $220mn is already fully deployed. Of the next proposed fund of $450mn, 35% is already committed, and 65-70% should be committed by June 2008. IDFC at that point in time intends to start talking to investors about a third fund of around $750mn. These funds typically run on the 2:20 structure common for hedge funds. Investments by definition are made into early-stage projects and typically the exit is through public markets.
The company's first foray into project equity is a $1bn fund in collaboration with Citigroup and Blackstone. The closure of the first tranche should happen very soon from now, and the fund is expected to be fully committed by June 2008. The aim is to have $3bn in FUM by June 2010. Investment is in later stage, mostly stable cash flow projects. The funds themselves will be listed – this has been a very successful model in Australia. Similar to private equity,this also earns fees and carry for IDFC's fund management arm, although lower than privateequity as the investment risks are correspondingly lower.
The company's tie-up with Citigroup, Blackstone and India Infrastructure Finance Company (IIFCL) for deploying US$5 bn into infrastructure projects in India has significantly improved the visibility for fee income streams. Out of total expected funds of US$5 bn, the equity component of US$2 bn will be managed by IDFC and the debt component of US$3 bn (to be raised by IIFCL) is being appraised by IDFC.
Recently the company has also acquired Standard Chartered Asset Management Company Pvt Ltd (SCAMC) and Standard Chartered Trustee Company Pvt Ltd (SCTCPL). SCAMC and SCTCPL represent the mutual fund business of Standard Chartered PLC in India. This will open up a new growth avenue for its non-fund-based income.
Investments in non-listed entities also offers good upside
IDFC has certain good strategic investments, which provides additional upside. It has 3,690,847 shares of NSE bought at Rs 92 crore, which should be worth much more. It now controls 79.80% in SSKI. SSKI is a privately held domestic corporate finance and institutional securities company based in Mumbai. Through this investment, IDFC and SSKI propose to work together by pooling their relationships and expertise to provide investment banking and capital markets solutions especially to infrastructure clients.
Will continue to attract rich valuations
In FY 2008, we expect the company to register total income of Rs 2771.74 crore and net profit of Rs 737.12 crore. On fully diluted equity of Rs 1294.30 crore and face value of Rs 10 per share, EPS works out to Rs 5.7. This is expected to rise to Rs 7.5 in FY 2009. The share price trades at Rs 168. While the P/E on FY 2008 EPS is 29, it falls to 22.4 on FY 2009 EPS. IDFC's FY 2009 book value is expected to cross Rs 50 levels, which is discounted 3.3 times by the current price.
IDFC is an early-cycle play on Indian infrastructure, just as Indian private-sector banks were early-cycle plays on Indian retail banking in the late 1990s or early 2000s. Just as banks like HDFC had always been looking expensive but still gave phenomenal returns in the past due to their ability to capitalise on the tremendous opportunity in retail banking, IDFC is well placed to make most of the infrastructure opportunity unfolding in India (US$ 475 billion to be invested in the next 5 years).
| Infrastructure Development Finance Company: Consolidated Financials |
|
| 0503(12) | 0603(12) | 0603(12) | 0703(12) | 0803 (12P) | 0903 (12P) |
| Inc. from operations | 733.05 | 1034.69 | 1034.69 | 1566.06 | 2757.65 | 3860.70 |
| Other Income | 9.02 | 2.09 | 2.09 | 5.23 | 14.09 | 19.73 |
| Total Income | 742.07 | 1036.78 | 1036.78 | 1571.29 | 2771.74 | 3880.43 |
| Interest expenses | 311.91 | 500.79 | 500.79 | 855.46 | 1490.05 | 2086.07 |
| Other expenses | 30.67 | 50.76 | 50.76 | 77.72 | 224.11 | 358.58 |
| Operating Profit | 399.49 | 485.23 | 485.23 | 638.11 | 1057.58 | 1435.79 |
| Provision and Cont. | 64.82 | 38.75 | 38.75 | 17.5 | 54.74 | 87.58 |
| Depreciation | 4.00 | 3.86 | 3.86 | 4.42 | 5.29 | 6.40 |
| PBT | 330.67 | 442.62 | 442.62 | 616.19 | 997.55 | 1341.81 |
| Tax provision | 21.32 | 51.69 | 51.69 | 124.1 | 246.75 | 348.87 |
| PAT before minority interest | 309.35 | 390.93 | 390.93 | 492.09 | 750.81 | 992.94 |
| Add: share of profit of associate | -0.04 | 0.00 | 0 | 11.83 | 1.35 | 2.00 |
| Less: share of profit in minority interest | 0.00 | 0.17 | 0.17 | 0 | 15.04 | 22.56 |
| PAT | 309.31 | 390.76 | 390.76 | 503.92 | 737.12 | 972.38 |
| EPS*(Rs) | 2.8 | 3.0 | 3.0 | 3.9 | 5.7 | 7.5 |
| * Annualized on current equity of Rs 1294.30 crore. | ||||||
| Infrastructure Development Finance Company: Consolidated results |
|
| 0712(3) | 0612(3) | Var. (%) | 0712(9) | 0612(9) | Var. (%) | 0703(12) | 0603(12) | Var. (%) |
| Inc. from operations | 763.39 | 402.26 | 90 | 2028.1 | 1142.89 | 77 | 1566.06 | 1034.69 | 51 |
| Other Income | 3.31 | 0.04 | 999 | 5.01 | 0.69 | 626 | 5.23 | 2.09 | 150 |
| Total Income | 766.7 | 402.3 | 91 | 2033.11 | 1143.58 | 78 | 1571.29 | 1036.78 | 52 |
| Interest expenses | 396.04 | 229.05 | 73 | 1037.78 | 589.42 | 76 | 855.46 | 500.79 | 71 |
| Other expenses | 62.93 | 18.17 | 246 | 160.11 | 49.33 | 225 | 77.72 | 50.76 | 53 |
| Operating Profit | 307.73 | 155.08 | 98 | 835.22 | 504.83 | 65 | 638.11 | 485.23 | 32 |
| Provision and Cont. | 7.3 | 4.33 | 69 | 30.06 | 1.58 | 999 | 17.5 | 38.75 | -55 |
| Depreciation | 1.34 | 1.11 | 21 | 3.79 | 3.19 | 19 | 4.42 | 3.86 | 15 |
| PBT | 299.09 | 149.64 | 100 | 801.37 | 500.06 | 60 | 616.19 | 442.62 | 39 |
| Tax provision | 77.42 | 26.8 | 189 | 197.7 | 97 | 104 | 124.1 | 51.69 | 140 |
| PAT before minority interest | 221.67 | 122.84 | 80 | 603.67 | 403.06 | 50 | 492.09 | 390.93 | 26 |
| Add: share of profit of associate | -0.15 | 2.15 | 999 | 0.35 | 7.89 | -96 | 11.83 | 0 | 999 |
| Less: share of profit in minority interest | 4.24 | 0 | 999 | 11.28 | 0 | 999 | 0 | 0.17 | 999 |
| PAT | 217.28 | 124.99 | 74 | 592.74 | 410.95 | 44 | 503.92 | 390.76 | 29 |
| EPS*(Rs) | 6.7 | 3.9 |
| 6.1 | 4.2 |
| 3.9 | 3.0 |
|
| * Annualized on current equity of Rs 1294.30 crore. | |||||||||
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