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IFCI: Accelerating losses

Sep 4, 2001

IFCI reported loss of Rs 278 m for the first quarter ended June 2001 on the back of a sharp decline in operating margins and a drop of 9% in income from operations.

(Rs m) 1QFY01 1QFY02 Change
Income from Operations 6,950 6,356 -8.6%
Other Income 14 13 -7.8%
Interest Expanded 6,283 6,130 -2.4%
Operating Profit (EBDIT) 667 226 -66.2%
Operating Profit Margin (%) 9.6% 3.5%  
Other Expenses 111 130 17.3%
Depreciation 151 126 -16.2%
Profit before Tax 419 (18) -
Provisions & contingencies 254 260 2.6%
Tax   - -
Profit after Tax/(Loss) 165 (278) -
Net profit margin (%) 2.4% -4.4%  
Number of shares (eoy) 640 639  
Diluted Earnings per share 1.0 -  

IFCI's operating margins had risen impressively to 18.6% in 4QFY01. However, during the June quarter OPM were just 3.5%. The institution's high cost of borrowing is responsible for such a sharp drop in margins.

IFCI's operating expenses continued to rise in 1QFY02 despite a downturn in the business volume. This further contributed in accelerating the net losses of the institution.

IFCI had appointed an expert committee in FY00 to restructure its financial health and to resolve the problems of bad loans. The committee 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 and the same trend continued in 1QFY02 despite losses.

In order to shore up its capital adequacy ratio which stood at just 6.2% as on March 2001, IFCI requires additional capital of Rs 10 bn. IFCI is in advanced talks with its institutional shareholders to finalise modalities for the infusion of Rs 6 bn capital as part of the Rs 10 bn recapitalisation package cleared by the Government earlier. It will receive the balance Rs 4 bn from the government in the next 10 days. This restructuring plan is expected to assist IFCI in improving its deteriorating networth.

At the current market price of Rs 3, the stock is trading at a Price/Book value ratio of 0.3x. Its networth in FY01 deteriorated by over 20% to Rs 16 bn due to mounting losses.


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