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.

Industrial Development Bank of India (IDBI): BUY with a traget of 200

It owns 5% of IFCI. IFCI is currently under-going a structural change in its
existence with a probable infusion of a strategic partner, which could be Citigroup OR some other from the same global pedigree. IDBI also co-owns with IFCI, reputed firms of the capital markets like SEBI, NSE, SHCIL, CARE, ISIL, OTCEI and NSDL. It also owns sizable holdings in Money Market institutions like DFHIL, STCIL and CCI.
Apart from these investments, IDBI owns equity investments in various companies and institutions. The bank has quoted equity investments of Rs 85.1bn (Book Value as on March 2006), with a market value of Rs 85.9bn.
The discounted realizable value of these investments are worth Rs 82.3/ share.

The UWB acquisition was very good and IDBI will benefit from it in the long-run. The acquisition increased IDBI’s network by 230 branches from 195 branches to 425 branches. IDBI can leverage on UWB’s widespread network, access to the Low Cost Deposits and expand its Retail Credit Portfolio.

IDBI is also focusing on increasing its Fee Based Income. It has tied up with Fortis Insurance & Federal Bank to form a Life Insurance company, where the Bank holds major stake i.e. 48%. Further, leveraging on corporate relationships, the Bank is expected to increase its offerings and enter businesses such as Assent Management .

There was an increase of 73% in NII and a 12.4% increase in Net Profit. The NII margins went up 20 basis points from 0.5% to 0,7% in FY 07. For the quarter ended Sept. 07, Sales increased by 42.6% and PAT increase by 11.55%.
Great set of numbers !

At the CMP of 160, the stock trades at 14x FY09E EPS of Rs11.3, 1.23x FY09E Book Value of Rs 129.7. It is a clear Buy with a target of Rs 200 over next 12 months.

Technically, the setup looks for some big upmoves in the next few sessions. Though 160 is a strong resistance, it looks like we may see a breakout in couple of days. The volumes are increasing.

For those who want to trade in the short term, BUY with a SL of 145.