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IFCI: NPAs takes toll - Views on News from Equitymaster
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  • Jul 3, 2001

    IFCI: NPAs takes toll

    IFCI reported loss for the second consecutive year in FY01. Surprisingly, its income from operations grew sharply by 14% in 4QFY01 (a drop of 3% in the first nine months of the year).

    (Rs m) FY00 FY01 Change 4QFY00 4QFY01 Change
    Income from Operations 28,434 28,799 1.3% 6,639 7,592 14.4%
    Other Income 564 105 -81.4% 413 61 -85.3%
    Interest Expanded 25,357 25,201 -0.6% 6,288 6,178 -1.7%
    Operating Profit (EBDIT) 3,076 3,598 17.0% 351 1,414 303.0%
    Operating Profit Margin (%) 10.8% 12.5%   5.3% 18.6%  
    Other Expenses 1,051 802 -23.7% 327 426 29.9%
    Depreciation 701 561 -19.9% 163 105 -35.7%
    Profit before Tax 1,888 2,340 23.9% 274 944 245.2%
    Provisions & contingencies 3,806 4,959 30.3% 1,134 3,946 248.0%
    Tax - 40   - 40  
    Profit after Tax/(Loss) (1,918) (2,659) 38.6% (860) (3,041) 253.6%
    Net profit margin (%) -6.7% -9.2%   -13.0% -40.1%  
    Number of shares (eoy) 640 639   640 639  
    Diluted Earnings per share - -   - -  

    IFCI's operating margins too showed an impressive rise to 18.6% in 4QFY01 compared to 5.3% in the corresponding quarter of the previous year and 10.3% in the first nine months of FY01. Removal of interest tax with effect from April 1, 00 contributed to an aggregate improvement of 168 basis points in operating margins for FY01.

    The cost to income ratio of the institution declined to 29% in the last quarter (from 43% in 4QFY00). This coupled with a fall in depreciation cost resulted in over 200% jump in profits before tax. However, a substantial rise in provisioning amount resulted in the bottomline turning red. IFCI's gross non performing assets (NPA) stood at Rs 59 bn as on March '00. Its NPA portfolio is large where the top 10 NPAs aggregate Rs 9.6 bn.

    IFCI has appointed an expert committee in FY00 to restructure its financial health and to resolve the problems of bad loans. The committee has projected net profits of Rs 5.3 bn by the end of FY07. This will be achieved by aggressive NPA recovery plan. In FY00, the management had planned to reduce the NPA level by at least Rs 5 bn per year over the next 3 years. Consequently, higher provisions were made in FY01.

    At the current market price of Rs 4, the stock is trading at a Price/Book value ratio of 0.3x. Its reserves in the current year have deteriorated by over 60% to Rs 2.5 bn due to mounting losses. Looking at the current industrial weakness, it will be difficult for IFCI to curtail its losses in future.



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