TFCI_sharekhan

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Index

Stock Update >> Tourism Finance Corporation of India

Viewpoint >> Reliance Communications

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2Sharekhan Home NextJune 07, 2010

investor’s eye stock update

Company details

Price chart

Shareholding pattern

Price performance

(%) 1m 3m 6m 12m

Absolute -6.7 -1.6 17.4 11.0

Relative -6.7 -2.7 16.8 -4.1

to Sensex

Tourism Finance Corporation of India Cannonball

Stock Update

Price target revised to Rs38 Buy; CMP: Rs28

Result highlights

For Q4FY2010 Tourism Finance Corporation of India (TFCI) has reported a net

profit of Rs15.4 crore, indicating a growth of 19.7% year on year (yoy). This is

ahead of our estimate of Rs8.7 crore on the back of a higher than expected

growth in the net interest income (NII) and a lower than expected effective tax

rate for the quarter.

The NII for the quarter increased by a robust 81% yoy to Rs17.3 crore in Q4FY2010

from Rs9.5 crore in Q4FY2009. This was due to a strong 28% year-on-year (y-o-

y) growth in advances as well as a marginal improvement in the yield on

advances. For FY2010 the net interest margin (NIM) stood at 3.5%, improving

by 50 basis points over that of the previous year. On a sequential basis too the

NII displayed a robust growth of 81%. The healthy sequential growth primarily

stemmed from a combination of a 38.6% quarter-on-quarter (q-o-q) increase in

the interest income and a 10.7% reduction in the interest expended.

The operating expenses increased by 33.6% yoy at a slower rate as compared

to the NII, thereby leading the cost-to-income ratio to improve by 910 basis

points to 11.2%. As a result, the operating profit grew by a robust 88.1% yoy to

Rs16 crore in Q4FY2010 vs Rs8.5 crore in Q4FY2009.

The depreciation charges during the quarter fell by 10.1% yoy to Rs47 lakh vs

Rs53 lakh seen in the year-ago quarter due to lower depreciation on account of

buildings purchased vs that in the year-ago quarter.

During the quarter under review, the company wrote back provisions of Rs1

crore on account of a recovery in the non-performing assets (NPAs).

The tax rate of the company stood at 6.9% for the quarter as compared to

14.8% for Q4FY2009.

In Q4FY2010, the company registered a robust loan growth of 28% yoy. The

company expects the loan growth to remain strong in the coming two years

and estimates a loan growth of 28% in FY2011 and 30% in FY2012. Growth in

Price target: Rs38

Market cap: Rs226 cr

52 week high/low: Rs33/17

NSE volume: 3.1 lakh(No of shares)

BSE code: 526650

NSE code: TFCILTD

Sharekhan code: TFCI

Free float: 3.4 cr(No of shares)

Results table Rs (cr)

Particulars Q4FY10 Q4FY09 % yoy FY2010 FY2009 % yoyInterest earned 24.6 16.3 51.0 80.1 67.3 19.0

Interest expended 7.4 6.8 8.9 33.1 28.3 17.2

NII 17.3 9.5 81.0 46.9 39.0 20.3

Other income 0.8 0.5 58.6 1.4 3.7 -61.4

Net total income 18.1 10.0 79.8 48.4 42.7 13.3

Operating expenses 2.0 1.5 33.6 6.4 6.7 -5.4

Operating profit 16.0 8.5 88.1 42.0 36.0 16.8

Depreciation 0.5 0.5 -10.1 1.9 1.7 10.6

Provisions and contingencies -1.0 -7.1 -85.9 -6.0 -5.0 20.0

Profit before tax 16.6 15.1 9.6 46.1 39.2 17.4

Tax 1.2 2.2 -48.5 12.0 10.3 16.9

Profit after tax 15.4 12.9 19.7 34.1 29.0 17.6

Promoter

58%

MF & FI

1%

Public &

others

41%

15

20

25

30

35

J u n - 0 9

S e p - 0 9

D e c - 0 9

M a r - 1 0

J u n - 1 0



3Sharekhan June 07, 2010 Home Next


disbursements too remained strong at 18% yoy to Rs250

crore.

The asset quality of the company improved dramatically

during the quarter. In relative terms, the gross NPAs

(GNPA) for the quarter stood at 2%, down from 3.6% in

the previous quarter. In absolute terms the GNPAs stood

at around Rs14 crore as in Q4FY2010. The company

maintained a zero net NPA status during the quarter.

TFCI is planning to enter into the infrastructure project

financing business. Initially, the company is looking at

financing power projects and is very keen on financing

green power projects such as those based on solar

energy.

TFCI has reported a strong set of numbers for Q4FY2010

led by a strong growth in advances, lower effective

tax rate and improving asset quality. We draw

significant comfort from the zero NPA status and theanticipated improvement in the credit demand

environment for the tourism industry in general and

the hotel industry in specific. Further, the entry into

the infrastructure financing business will allow the

company additional avenues to deploy its funds and

lead to higher growth in advances in the quarters

ahead. We have tweaked our estimates for FY2011

and introduced our numbers for FY2012 in this note.

At the current market price of Rs28, the stock trades

at 5.1x its FY2012E adjusted earnings per share (EPS)

and 0.6x its FY2012E book value. We maintain Buyrecommendation on the stock with a revised price

target of Rs38.

Strong growth in advances

In Q4FY2010 the company registered a robust growth in

its advances, which increased by 28% yoy. The company

expects the loan growth to remain strong in the coming

two years and estimates a loan growth of 28% in FY2011

and that of 30% in FY2012. Growth in disbursements too

remained strong at 18% yoy to Rs250 crore. Meanwhile,

sanctions stood at Rs520 crore as on March 31, 2010,

higher as compared to Rs510 crore in FY2009. Theconversion period for sanctions to disbursements is around

two years.

NIM expands 50 basis points yoy

The NII for the quarter increased by a robust 81% yoy to

Rs17.3 crore in Q4FY2010 from Rs9.5 crore in Q4FY2009.

This was due to a strong 28% y-o-y growth in the advances

as well as a marginal improvement in the yield on

advances. For FY2010 the NIM stood at 3.5%, improving

by 50 basis points over that of the previous year. The

improvement was on account of an improvement in the

yield on advances from 12% in FY2009 to 12.5% in FY2010.

On a sequential basis too, the NII displayed a robust growth

of 81%. The healthy sequential growth primarily stemmed

from a combination of a 38.6% q-o-q increase in its interest

income and a 10.7% reduction in the interest expended.

Provision write-back boosts bottom line

During the quarter under review, the company wrote back

provisions of Rs1 crore on account of a recovery in the

NPAs, which provided a boost to the bottom line.

CAR at 58.24%

The capital adequacy ratio (CAR) for TFCI stood at 58.24%

as on March 31, 2010 as compared to 59.69% as on March

31, 2009.

Asset quality improves substantially

The asset quality of the company improved dramatically

during the quarter. In relative terms, the GNPAs for the

quarter stood at 2%, down from 3.6% in the previousquarter. In absolute terms the GNPAs stood at around Rs14

crore as in Q4FY2010. The company maintained zero net

NPA status during the quarter.

TFCI to enter into infrastructure project financing

business

TFCI is planning to enter into the infrastructure project

financing business. The company believes that by

financing infrastructure projects, such as power, ports,

airports, roads etc, it will indirectly be providing a boost

to the tourism and hospitality industries. Initially, the

company is looking at financing power projects and isvery keen on financing green power projects such as those

based on solar energy. Since TFCI provides long-term

funding, usually for 10-12 years, it is in a better position

to meet the funding requirement of power projects that

have a longer pay-back period.

Valuation

TFCI has reported a strong set of numbers for Q4FY2010

led by a strong growth in advances, lower effective tax

rate and improving asset quality. We draw significant

comfort from the zero NPA status and the anticipated

improvement in the credit demand environment for thetourism industry in general and the hotel industry in

specific. Further, the entry into the infrastructure

financing business will allow the company additional

avenues to deploy its funds and lead to higher growth in

advances in the quarters ahead. We have tweaked our

estimates for FY2011 and introduced our numbers for

FY2012 in this note. At the current market price of Rs28,

the stock trades at 5.1x its FY2012E adjusted EPS and

0.6x its FY2012E book value. We maintain Buy

recommendation on the stock with a revised price target

of Rs38.



4Sharekhan Home NextJune 07, 2010

Valuation table

Particular FY2008 FY2009 FY2010E FY2011E FY2012E

Adj net profit (Rs cr) 16.3 25.3 28.1 33.9 40.9

Shares in issue (cr) 8.1 8.1 8.1 8.1 8.1

EPS (Rs) 2.0 3.1 3.5 4.2 5.1

EPS growth (%) -5.0 56.0 11.0 21.0 21.0

Dividend yield (%) 3.6 3.6 4.4 4.4 4.4PE (x) 13.7 8.8 7.9 6.5 5.4

BV (Rs/share) 32.9 35.3 38.0 40.6 43.7

P/BV (x) 0.8 0.8 0.7 0.7 0.6

Adj. BV (Rs/share) 32.9 35.3 38.0 40.6 43.7

P/ABV (x) 0.8 0.8 0.7 0.7 0.6

RoNW (%) 6.6 9.2 9.5 10.7 12.0


The author doesn’t hold any investment in any of the companies mentioned in the article.



5Sharekhan June 07, 2010 Home Next

investor’s eye viewpoint

Reliance Communications

Viewpoint

Board approves equity dilution CMP: Rs176

Event

The board of Reliance Communications (RCom) has given

in-principle approval to sell up to 26% of its equity stake.

The press release further states that the company will

sell shares at an appropriate premium to the prevailing

market price to a strategic or private equity investor and

would also examine and pursue other appropriate

strategic combination or consolidation opportunities.

Though the media release by the company does not

provide any names with which the discussions for the stake

sale are on, reports are floating in the market that there

are three players eyeing the mentioned strategic stake,

viz the Middle East’s telecommunications (telecom) giant

Etisalat, the USA’s AT&T and South Africa’s MTN.

Impact

Improvement in the competitive positioning of the

company

We believe that the equity dilution by way of the stake

sale if happens at a price higher than the prevailing market

price would be positive for the company and the

shareholders. A 26% stake dilution would mean fresh

issuance of 72.5 crore shares. At various scenarios of 5-

20% premium range, the cash infusion in the company

would come in the range of Rs12,793 crore to Rs14,620

crore.

At various price levels between 5% (Rs176.4) and 20%

(Rs201.6) premium, fresh equity issuance would bring

down RCom’s end-FY2010 annualised net debt-to-earnings

before interest, tax, depreciation and amortisation

(EBITDA) level from the current 3.85x (including 3G+ roll-

out capital expenditure) in the range of 2-2.2x. Thus,

essentially fresh equity issuance at a price greater than

the current market price (Rs168 per share) would be

positive for the RCom stock from two perspectives: (a)

technically, fresh capital raised at greater than pre-money

fair value would increase the post-money fair value; and

(b) the competitive positioning of the company would

potentially improve with an improvement in the balance

sheet situation.

Table: No of shares on offer

Particulars Shares (crore)

Pre issue equity 206.4

New issue 72.5

Post issue equity 278.9

Stake dilution (%) 26.0

Table: Likely cash inflow in the company

No of shares issue 72.52 72.52 72.52 72.52

Premium to June 4, 2010 5 10 15 20

market price (%)Price per share (Rs) 176.4 184.8 193.2 201.6

Amount raised (Rs crore) 12,793 13,402 14,011 14,620

Table: Likely net debt-to-equity levels

Particulars FY10 Post Post-26% stake sale

3G 5% 10% 15% 20%

Net debt (Rs cr) 19,889 30,389 17,596 16,987 16,378 15,769

EBITDA (Rs cr) 7,896 7,896 7,896 7,896 7,896 7,896

Net debt/EBITDA 2.52 3.85 2.23 2.15 2.07 2.00

Exit route through open offer for minority shareholders

For the minority shareholder, as per the current Securitiesand Exchange Board of India regulation there is also a

possibility of an open offer (for 20% of increased

outstanding equity) if the fresh equity placement involves

a single entity buying more than 15% stake in the company.

Maintain caution

The event would indeed be positive for RCom, if it happens

at a premium. However, the impending risk of a one-time

2G spectrum fee, reframing of spectrum and introduction

of mobile number portability are significant uncertainties

plaguing the sector. Further, wireless operators in India

continue to be engaged in a revenue market share fight.

Thus, we maintain our cautious stance on the sector.

The author doesn’t hold any investment in any of the companies

mentioned in the article.



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