Recommendation Review: IDFC

We had recommended IDFC to readers in DSIJ Vol. 28, Issue No. 21 (dated October 6, 2013), when the scrip was trading at Rs 93. Factors like a significant increase in non-interest income, outperformance of its AMC business and a healthy dividend payment history supported our recommendation. Apart from that, its removal from the MSCI Standard and Large-Cap indices resulted in the counter witnessing a downward move, making it attractive on the valuations front. There were certain issues regarding asset quality, especially related to higher exposure (40 per cent) to the energy sector. However, the company is expecting this to change with significant restructuring expected to happen in this sector, especially in gas-based assets.

After our recommendation, the company registered a strong financial performance for the September 2013 quarter as well, posting a bottomline of Rs 486.75 crore as against Rs 475.65 crore in September 2012. The asset quality also improved in the quarter, as the Gross NPAs stood at 0.32 per cent and Net NPAs at 0.20 per cent of the outstanding loans. Backed by this strong performance, the scrip is now trading at Rs 102, providing an appreciation of 9.67 per cent. Considering the current uncertainty in the markets, we recommend that investors book profits in the counter.