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IFCI: Further deterioration

Aug 2, 2002

The troubled institution, IFCI, has expanded its net loss in June quarter to Rs 2.2 bn (0.3 bn in 1QFY02). The financial institution had reported a net loss of Rs 8.9 bn for the full year ended March 2002. Problems of adequate capital and challenging prospects in the financial market has impacted IFCI's quarterly performance.

(Rs m) 1QFY02 1QFY03 Change
Income from Operations 6,356 4,435 -30.2%
Other Income 13 139 960.2%
Interest Expenses 6,130 6,065 -1.1%
Net interest income 226 (1,630) -822.7%
Other Expenses 257 218 -14.9%
Operating Profit (31) (1,849) 5876.8%
Operating Profit Margin (%) -0.5% -41.7%  
Provisions and Contingencies 260 506 94.4%
Profit before Tax (278) (2,216) 696.9%
Tax - - -
Profit after Tax/(Loss) (278) (2,216) 696.9%
Net Profit Margin (%) -4.4% -50.0%  
No. of Shares (m) 638.7 638.7  
Diluted Earnings per share* -1.7 -13.9  

During the quarter, its interest income witnessed a sharp dip of 30% while interest expenses declined by a marginal 1%. Over 10 times rise in other income was not enough to compensate for the operating loss. IFCI also increased its provisions amount by over 90% in 1QFY03 to clean the balance sheet and increase coverage ratio.

IFCI is expected to get a guarantee from the government to borrow US$ 300 m to meet its foreign currency repayment obligations during 2002-2003. It had received an assistance of Rs 4 bn from the government in FY02. Its liquidity shortfall over the two years is estimated at Rs 71 bn. McKinsey's has recommended a capital investments of upto Rs 88 bn by the government and its stake holders to restructure the financial institution's business operations. IFCI is also in the preliminary stage of discussion with various foreign/domestic partners for strategic alliance, which will result in improving operational efficiency and business opportunity.

Currently, IFCI is trading at a price of Rs 4.5. The stock touched a high of Rs 8 in July in expectations of capital infusion from IFCI's stakeholders and the government. IFCI will have to make cautious move while making loan disbursements in the tough investment environment. However, without adequate capital, its business operations are unlikely to see revival.

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