Deutsche Bank has initiated coverage on IDFC, India’s only listed infrastructure financing company with a Price Target of Rs 150.
IDFC’s fee incomes will grow aggressively at an estimated CAGR of 66% during FY07-FY10E, and from 17% of total income in FY07 to 33% in FY10E. Fees are expected to rise from 17% of total income in FY07 to 33% in FY10E. Ramp-up of the principal investment business provides added equity upside potential.
Since it is not realistically possible to improve the RoE of the lending business to beyond 18-19% because of the expected spread compression, IDFC has been deliberately allocating more capital and management time to the other forms of serving the same infrastructure finance objective. These are principal investments, private equity, project equity and investment banking. Globally, infrastructure lending has progressed in this direction.
IDFC currently has $670mn FUM under private equity. One fund of $220mn is already fully deployed. Of the next proposed fund of $450mn, 35% is already committed, and should be 65-70% committed by June 2008. IDFC holds investments through PE in Bharti Airtel, NTPC, Indraprastha Gas, ONGC, etc
Sum of Parts Valuation of IDFC:
Value from Infrastructure Financing Rs120
Value form SSKI Rs 7.2
Value from NSE and ARCIL stake RS 7.0
Value from IDFC Private Equity Rs 8.3
Value from IDFC Project Equity Rs 5.1
Value from gains on listed investments Rs 3.0
Here is Citigroup’s Research Report on IDFC.