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IDFC: Asset management saves the day - Views on News from Equitymaster
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IDFC: Asset management saves the day
Apr 29, 2009

Performance summary
  • Consolidated interest income grows 30% YoY in FY09, despite a staid 2% YoY growth in advances. Disbursements drop by 33% YoY, approvals by 49% YoY in FY09.
  • Asset management fees increased 4 times, total asset under management (AUM) stands at Rs 240 bn at the end of March 2009.
  • Net interest margins (NIM) improve from 2.9% in FY08 to 3.1% in FY09 despite higher costs.
  • Non-interest income drops by 1% YoY in FY09 due to lower investment banking and loan related fees.
  • Bottomline grows by mere 1% YoY in FY09 due to higher operating cost and tax incidence.

Consolidated numbers…
Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Interest income 7,670 9,561 24.7% 27,951 36,264 29.7%
Interest expended 4,491 5,420 20.7% 14,829 20,812 40.3%
Net Interest Income 3,179 4,141 30.3% 13,122 15,452 17.8%
Net interest margin 2.9% 3.1%
Other Income 63 (16) -125.4% 113 104 -8.0%
Operating expense 853 1,305 53.0% 2,532 3,665 44.7%
Provisions and contingencies 400 1,151 187.8% 700 1,532 118.9%
Profit before tax 1,989 1,669 -16.1% 10,003 10,359 3.6%
Tax 503 454 -9.7% 2,480 2,782 12.2%
Effective tax rate 25.3% 27.2% 24.8% 26.9%
Profit after tax/ (loss) 1,486 1,215 -18.2% 7,523 7,577 0.7%
Net profit margin (%) 19.4% 12.7% 26.9% 20.9%
No. of shares (m) 1,294 1,295
Book value per share (Rs)* 47.7
P/BV (x) 1.4
* (Book value as on 31st March 2009)

What has driven performance in 4QFY09?
  • Signalling a significant slowdown in the private sector participation in infrastructure investment activity in the past fiscal, IDFC’s sanctions and disbursements have fallen significantly on a YoY basis in FY09. The institution concluded the fiscal with a high disbursement to sanction ratio of 78%. IDFC has clearly prioritised its goals into – liquidity, profitability and growth. This has resulted in the institution cutting back on its incremental disbursement despite sufficient capital adequacy (24% in FY09). The loan growth of 2.3% YoY is lower than our estimate by 3.5% for the full year FY09. In FY10, IDFC will be targeting loan growth in the range of 10% to 12%.

  • Ability to re-price the matured loan agreements aggressively due times of tight liquidity in the markets has helped IDFC improve its NIMs to 3.1% (2.9% in FY08). We had estimated the same at 2.8% for the full year.

    Cautious growth…
    (Rs m) FY08 FY09 Change
    Sanctions 203,640 103,170 -49.3%
    Disbursements 120,060 80,850 -32.7%
    D/S ratio 59.0% 78.4%  
    Advances 204,950 209,630 2.3%

  • The share of non-interest income to IDFC’s total income decreased from 47% in FY08 to 39% in FY09 due to lower treasury and investment banking income. The institution also clarified that in case of loans disbursed against shares of companies, a loan to value ratio of 2 times is maintained. The volatility in share prices have therefore not impacted IDFC’s asset book.

    Funds under management
      1QFY09 4QFY09 Change
    Funds US$ m Rs m US$ m Rs m  
    IDFC Private Equity 630 27,090 1,300 59,920 121.2%
    Fund I 190 8,170 180 8,440 3.3%
    Fund II 440 18,920 420 19,880 5.1%
    Fund III     700 31,600  
    IDFC Project Equity 523 22,470 870 35,890 59.7%
    IDFC AMC 2,451 114,000 2,260 143,620 26.0%
    IDFC Investment Advisory 33 1,430 20 740 -48.3%
    Total 3,637 164,990 4,450 240,170 45.6%

  • The institution is currently adequately capitalised and needs to maintain minimum CAR of 15% as per the RBI norms. The operating costs for the institution have also increased by 45% YoY in FY09 (cost to income ratio of 24%). However, the same was particularly due to the inclusion of a one time fee payment for the project equity business. IDFC had 0.2% net NPA levels at the end of FY09.

What to expect?
At the current price of Rs 76, the stock is attractively valued at 1.3 times our estimated FY11 adjusted book value. With one of the highest capital adequacy ratios, highest operating efficiency and one of the best return ratios; we reiterate our positive view on the company with a long-term perspective. Having said that, if the asset growth continues to remain at lower levels (as compared to our estimates) we may have to revise our estimates downwards for the year going forward.

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