[T.S.R:17544] IDFC-Troubled Existence

IDFC-Can The Borrower's Execute Their Projects?

Power projects funded by IDFC have been stalled for want of fuel linkages, meanwhile capital markets have become challenging affecting the performance of the broking business, while NIM's have dropped to the lowest in industry level of 2.2 per cent. Not exactly a joyful existence for this state owned multi-lateral lender.

Takeaways from Mumbai — IDFC management presented at our India Investor 

Conference in Mumbai today. Key highlights are as below:

Outlook on overall infrastructure environment — There has been a lot of issues 

surrounding the infrastructure space recently, especially in the power segment. 

Management is of the opinion that most current concerns are related to execution, and 

will likely see some improvement in 2H12. However, fuel/coal linkage is the more 

serious concern - partly executional (can be fixed), but partly also structural and could 

lead to overall slower growth in power capacity additions medium term. 

The good parts 

- renewable energy will get relatively more focus & improved execution for road 

projects - will likely be key growth areas.

IDFC's loan growth should remain healthy — IDFC management remained 

confident of loan growth, and although slower in 1H12 (high single digits 

sequentially), it should pick-up in 2H12 with overall FY12 growth of around 25%. Key 

drivers could be power (undisbursed sanctions largely, fresh sanctions may pick-up 

later) and roads. Longer term, management remains more confident of the growth 

outlook and is not changing its guidance of doubling loan book between FY11-FY14.

NIM pressure likely to ease off in next few months — Management says NIM 

pressure is seeing signs of easing as banks have been raising their lending 

rates and interest spreads have limited downside from current levels (2.2% currently).

While there is some immediate pressure, these should moderate as the interest rate 

environment stabilizes. 

Asset quality: Still too early to talk of impairments — IDFC management believes it 

is still too early to talk about meaningful impairments to its loans as most of the power 

exposure is in operational assets (55% of total power exposure) and only 45% is under 

construction. Also it does not have much exposure to the merchant power segments 

(has had caps on exposure to merchant power) and believes key in asset quality will be 

selection of the sponsors - IDFC relatively well placed.

Capital market businesses — With regards to the outlook on market segments for 

IDFC, broking, investment banking, and asset management remain challenging as 

increasing competitive intensity has impacted profitability. Also, loan related fees could 

slow as incremental disbursements are lower in FY12. Principal investments remain 

volatile and difficult to predict (would be challenging to see meaningful upsides in the 

current environment).

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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