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Saturday, September 19, 2009

IFCI Ltd:Future growth outlook and prospects(Buy/hold or sell?)

Scripscan:IFCI Ltd

Story:With a rebound in economic activity, we expect NPA recoveries to accelerate. We have revised our estimate on chances of recovery to 40%, from earlier 30% of provided NPA. Gross NPAs have scaled down 5% to Rs 5,152 cr from year ago. Net NPAs as of March 09 were Rs 463 cr. However, excluding one power project which is likely to be upgraded,net NPAs stand just at Rs 77 cr.IFCI has a very comfortable capital adequacy ratio of 19.7%.It can easily grow at an accelerated rate without raising fresh capital. It continues its plan to rope in a strategic partner which will not only bring in capital to strengthen the balance sheet, but also bring in the required expertise to expand its reach in the financial services gamut.Total approvals increased to Rs 40 bn as against Rs 25 bn in previous year, similarly total disbursement has improved to Rs 33 bn as against Rs 23 bn last year.After a gap of ten years, IFCI has declared dividend of 8% for FY09. It has declared dividend after fulfilling the necessary precondition of making profit for last three years.In a bid to make our financial system more sound, regulator might decide to issue banking license to NBFC. Once it happens, IFCI would be in all scenario most probable beneficiary. Once converted in to a bank, cost of funds would significantly come down and would cater to capital need to expand its loan book.In addition to normal lending activity, it has started focusing on private equity participation, project development and other advisory service. It plans to offer products, which banks are restricted like promoter’s funding, take-out finance and debt swapping.It has invested Rs 382 cr in its various subsidiaries including IFCI Financial services Ltd, IFCI Venture Capital Funds, IFCI Infrastructure development Ltd and IFCI Factors Ltd.We have reviewed annual report of IFCI. With acceleration inrecovery rate, the institution has returned to dividend list after ten years. We retain ‘BUY’on IFCI and upgrade our one year target price to Rs 78/- per share.

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