IFCI Quite undervalued By SP Tulsian

IFCI is a financial institution , presently not engaged in any commercial, financial or lending business, except for recovering its NPA and has been posting profits.

• For Q1 of FY08, it had PAT of Rs 247 crores, Q2 had PAT of Rs 497 crores and Q3 had a PAT of Rs 319 crores. Since these NPAs were earlier provided in the books, now any recovery is shown as income of the company. First 9 months have seen recovery of Rs 1,519 crore, on which tax provision was Rs 456 crore with PAT of Rs 1,063 crore.

• IFCI had initiated a process to induct a strategic partner by issuing 26% equity to such investor, but the process could not get completed, with Sterlite, who was lone bidder for such stake.

• Before inducting strategic investor, IFCI had agreed with various holders of Zero Coupon Optionally Convertible Debentures (OCD) to convert Rs 1,324 crore of such OCD into equity shares of Rs 10 each at Rs 107 per share. This would increase paid up equity by Rs 124 crore while net worth would rise by R s1,200 crore.

• The present equity is at Rs 640 crore which would rise to Rs 764 crore after conversion of OCD as stated above.

• IFCI has 11 regional offices and 6 other offices located at Mumbai, Delhi, Chennai, Kolkata, Jaipur, Bangalore, Hyderabad, Kochi and Ahmedabad with about 4.66 lakh sq ft of commercial premises. Of this, IFCI Tower in New Delhi has 2.13 lakh sq ft owned area and 0.84 lakh sq ft of car parking, plus 0.30 lakh sq ft at Nariman Point in Mumbai. The estimated value of the commercial property is close to Rs 1,500 crores.

• IFCI also has 7.55 lakh sq ft of residential premises with 3.50 lakh sq ft in Delhi, 0.46 lakh sq ft in Mumbai and 0.40 lakh sq ft in Bangalore. Value of all these properties are close to Rs 1,000 crores.

• IFCI holds 5.44% stake in NSE, 19% in Tourism Finance, 17% in Stockholding and 8% in GIC Housing. Value of quoted and unquoted investments are close to Rs 5,000 crores.

• As hinted by IFCI and Finance Minister earlier, it is likely that the process of inducting strategic investor on more attractive terms would get revived in the near future. This may lead to better valuation of IFCI..

• IFCI is presently ruling at Rs 62 which values it close to Rs 4,800 crores. Taking debt of about Rs 10,000 crores, total value is close to Rs 15,000 crores. The assets of realty, quoted and unquoted investments and standard loan of Rs 6,000 crores are estimated at about Rs 20,000 crores.This leaves a scope of share getting valued close to Rs 100 per share.

• Improvement in valuation is due to conversion of loan of Rs 1,324 crores into net worth and recovery of bad debts of Rs 1,500 crore in 9 months.

• In future course of disinvestment, even banking permission may be given to IFCI, which would vastly improve its valuation.

• Considering these, share at Rs 62 makes a good buy with limited downside risk of about Rs 5 while on upside it can touch Rs 95 to Rs 100 in the next couple of months.