IDFC: BUY with a Target Price of Rs 222

IDFC is all set to ride the infrastructure boom in India for the next 3-4 years. THe spend on infrastructure plans is Rs 14500bn during the 11th plan (2007-2012), an increase of 8% by 2012 of GDP from currently 4.5% of GDP. Indian Government has encourages private participation and eased entry of private players by oferring concessions and offering great opportunities for private players among which IDFC is a dominant player in this segment.

IDFC has strategically built domain expertise in many sectors and its positioning itself as a specialist infrastructure institution has helped it develop a sharp focus in areas such as project appraisal. IT has developed strong risk management systems and as result of which it has one of the best asset quality in the industry. The company’s Gross NPAs stood at Rs 300 mn (0.2%) and Net NPAs are nil.

IDFC is also diversifying its revenue stream from lending spreads to the fee based income. The company has made a smart move by developing the capabilities in
fee-generation segments viz. Asset management and the investment banking to mitigate the risk of the rising interest rates.

Income from Operations went up by 49.2% in FY07 and PAT increased by 29%.

At the CMP of 193, the stock trades at 31.12X, FY09E EPS of Rs 6.2, 4X FY09E Book Value of Rs 47.3.

BUY with a 12 month Target Price of Rs 222 at which it would quote at 4.7x of its FY09E book value.