IDFC: Anand Rathi Securities Research Report

Anand Rathi Securities is bullish on IDFC and has recommended buy rating on the stock with a target of Rs 219 on the following investment rationale:

IDFC’s profit rose 19.1% yoy, led by stable spreads, resilient AMC fees and strong capital market revenue. IDFC lending and AMC business are steady, re-affirming our belief in its quality of earnings. With its strong domain expertise and unique positioning, we believe IDFC is poised to capitalize on opportunities in infrastructure funding.

IDFC‘s disbursements rose 68% yoy; approvals however dropped 43.8% yoy. The infra loan book grew 50.7% yoy to Rs 356.5 billion. Spreads, at 2.4%, were largely stable, leading to NII rising 66.7% yoy. We expect NII of IDFC to grow 29.1% in FY12 and 25.3% in FY13, led by a strong infraloan pipeline and IDFC’s ability to manage spreads efficiently. Asset management fees (from mutual funds) rose 7% yoy. Current AUM of USD 5.9 billion (68.5% comprises mutual funds) is likely to drive growth in fee income. Capital market revenues were buoyant, with yoy growth registered in investment banking (236%) and advisory fees (67.7%). However, principal investment gains of IDFC fell 71.4% yoy to Rs 290 million, leading to the restrained non-interest income.

Our sum-of-parts valuation of IDFC gives us fair value of Rs 219; we value the lending business of IDFC at Rs 185/share (2.3x FY12e BV) and other businesses and investments of IDFC at Rs 34/share. Risks: substantial slowdown in infrastructure spending and inability to mobilize resources for the AMC business. We maintain our Buy rating on the stock for a target price of Rs 219.