Buy IDFC – Modest Valuations

SBICap Securities has initiated coverage on IDFC with a BUY Rating due to High Quality and Low Leverage. IDFC is now a diversified financial institution with investment banking / stock broking under its hood by the acquisition of SSKI / Sharekhan and Standard Chartered Mutual Fund.

Infra Project Finance:
Project Finance continues to be the largest contributor in terms of volume and bottom line. Since this business is not a high RoE, valuations are pretty much on the lower side.The Project Financing requires high capital to maintain its AAA rating and is difficult in the current market scenario.

Apart from Private Equity and Project Equity all other businesses of IDFC are into near term uncertainties. The mutual fund business would take sometime before its AMC starts paying dividends to IDFC.

IDFC has fantastic asset quality with less than 0.9% NPAs. Using sum of the parts valuation, SBICaps has set a target price of Rs 104 on the stock.

IDFC Standalone Rs 90
PE Business Rs 3
Project Equity Rs 3
Mutual Fund Rs 5
Investments Rs 3