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IFCI: 2Q losses skyrocket - Views on News from Equitymaster
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  • Dec 3, 2001

    IFCI: 2Q losses skyrocket

    Financial Institutions (FIs) save for ICICI have taken a severe hit in their September quarter performance. IFCI became the second FI after IDBI to post a loss of Rs 4 bn in the first half of the current fiscal. Losses are mounting up quarter over quarter due to severe pressure on interest margins, higher operating expenses and provisions for non performing assets (NPAs).

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Income from Operations 7,309 4,387 -40.0% 14,259 10,742 -24.7%
    Other Income 14 16 12.9% 29 29 2.7%
    Interest Expanded 6,398 5,998 -6.2% 12,681 12,128 -4.4%
    Operating Profit (EBDIT) 912 (1,612)   1,578 (1,386)  
    Operating Profit Margin (%) 12.5% -36.7%   11.1% -12.9%  
    Other Expenses 135 172 27.5% 246 302 22.9%
    Depreciation 155 110 -29.2% 306 236 -22.8%
    Profit before Tax 636 (1,877)   1,055 (1,895)  
    Provisions & contingencies 490 2,260 360.8% 744 2,520 238.7%
    Tax - -   - -  
    Profit after Tax/(Loss) 146 (4,137)   311 (4,415)  
    Net profit margin (%) 2.0% -94.3%   2.2% -41.1%  
    Number of shares (m) 638.7 638.7   638.7 638.7  
    Diluted Earnings per share (Rs) 0.9 -   1.0 -  

    During the current quarter, IFCI's income from operations nosedived 40% compared to a decline of 9% in 1QFY02. Further higher borrowing cost only contributed in inflating the net loss. The institution's cost to income ratio increased marginally to 5% in the first half of the current year (4% in 1HFY01) and other income to total income ratio remained constant at 0.3%.

    Over the last few months, IFCI is witnessing a severe cash crunch and its capital adequacy ratio (CAR) has deteriorated to 6.8% as on March 2001. The consortium of FIs along with SBI had promised to infuse capital to the tune of Rs 10 bn so that IFCI can have a comfortable liquidity to continue its business operations. While the government has already made available Rs 4 bn as part of the Rs 10 bn rescue package, LIC, one of the parties to the recapitalisation has agreed for contributing Rs 2 bn as tier-I capital. With this, IFCI's CAR will shore up to 8%. SBI is also expected to contribute Rs 2 bn soon to bail out IFCI from its financial woes. ICRA has recently downgraded its rating of IFCI's various instruments. This would further make it difficult for IFCI to raise money from the market.

    IFCI plans to leverage the Rs 10 bn revival package in raising more funds and realigning its business profile. It proposes to strike deals with commercial banks for short and medium term finance. It also aims to rope in a strategic partner. Nevertheless, the institution is expected to take atleast 3-4 years before it starts making profits.

    At the current market price of Rs 4 IFCI is trading at Price/Book value ratio of 0.4x. IFCI's networth stood at Rs 16 bn in FY01 and it is likely to reduce to half by the year end if its losses continue to rise over the next two quarters.



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