IFCI - True Worth - A probability?

IFCI total equity is 63.8 crores of shares outstanding. It's Post Tax Profit for 06-07 is Rs.898 crores or about Rs.14 per share.
Almost entire Non Performing Assets (NPA) or Loans of about Rs.6000 crores (Rs.94 per share) has been fully provided for. Its NET WORTH has turned positive. Its actual business of corporate lending has resumed, granting fresh advance of Rs.1000 crores and additional Rs.2500 crores will be sanctioned this year.

IFCI's earlier major lending had been to Steel and Textile sector both of whom are riding high on the back of higher steel prices and higher real estate prices for their land holdings. Most investments in corporate were made at bottom prices and have zoomed several times. For example, it bought LIC Housing Finance (over 2 Million shares) and UTI Bank below Rs.20 against current market price of Rs.155 and Rs.470 per share. Because, the investments are generally valued at Cost price or Market price, whichever lower, the gains or earning gets understated several times. New taking over institution will adopt more realistic model for earning reporting.

Presuming that regular EPS (from Interest earning) will be in the region of Rs.8 per share, unrealized gains on BSE holding at about Rs.650 crores (Rs.10 per share), the potential gains on ICRA sale, the EPS will zoom to over Rs.30 per share.

Further, it is normal practice that the Bank or FI's bad debts generally get realized at about 65% of outstanding value. It is safe to guess that out of Rs 6000 crores of bad debts fully provided for, it is likely that they would realize about Rs 3900 crores or massive Rs 61 per share. This will get unlocked over next 3 years (because limitation period runs for just 3 years)

In all, the EPS will consistently be over Rs.35 per share (including special gains) for next 3 years. Considering potential PE ratio of just 10 times, the stock could go over Rs.300 in just under one year time. Every quarter will give massive boost.

It may come to Dividend payment by next year. IFCI board has passed resolution to attract foreign strategic partner to give stake up to 74%. If some foreign brokerage takes over this institution, the PE rating will increase to 18 times, which translate stock prices to 500 or more.

As per latest development, 8 foreign institutions have expressed interest to take 51% equity or more. If such things do happen, there has to be public offer for remaining 49% or 26% as the case may be, under existing takeover rules.
In all probability, the take over price could shape into Rs.80 to Rs.120 per share.

If some foreign brokerage like Lehman Bros takes over, the valuation will be higher as above. If it is taken over by some foreign banks like Citicorp, then valuation will be lower, because brokerage firms usually boost the stock prices of their holding by feeding the market with good news in constant stream. Banks do not. So, if some brokerage like Lehman Bros takes over, stock could go to over Rs.500 and if taken over by Citicorp or its ilk, the valuation will come down to modest Rs.250 to Rs.300


Note: Special Thanks to my friend who have contributed the above details.


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