What is the future of IDFC?
-Vishal Tanna
IDFC has come a long way from being an infrastructure lending company to become a broad based financial service provider. The infrastructure finance company status allows IDFC to raise up to 50 per cent of its net worth through external commercial borrowings and enables it to issue tax-sheltered infrastructure bonds. It is into equity financing through private equity, investment banking and infrastructure advisory support with a third of its revenues coming from non-lending fee based businesses in 2010-12.
It has high quality loan book with gross non-performing asset at 0.19 per cent (Q2FY12). IDFC’s future guidance indicates tripling its balance sheet over the next 3-4 years on the back of equity infusion which increased the capital adequacy ratio to 24 per cent (FY11) from 20 per cent (FY10). However, the asset growth was muted in H1FY12, with the year-to-date loans growing at just 4 per cent.
Its current PE ratio is at a discount of 42 per cent to its five-year median PE of 22.1 and similarly PB is also trading at a discount of 38 per cent to its five-year median of 2.8. Although concerns relating to slowdown and possible worsening of asset quality impacted the stock performance; monetary easing and expected government thrust in the infrastructure sector could act as major catalysts in improving IDFC’s growth and profitability.
This article was originally published on March 16, 2012.
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