IDFC - CMP Rs.167 - 2012 Diwali Pick - Aditya Birla Money

IDFC has underperformed within the sector as well as the broad markets owing to concerns in the infrastructure and power portfolio. We believe the recent reform initiatives by the government in the infrastructure sector will bring down the perceived risk of higher bad assets in the infrastructure portfolio significantly.

In the energy sector (42% of IDFC's o/s disbursements), the Government has sprung into action at all levels to resolve the issues afflicting the sector - revision of power tariffs, FSA's for coal, restructuring of SEB loans & pooled pricing for coal.

In the transportation sector (23% exposure), the government has set the ball rolling for giving out Rs 140 bn worth of national highway projects which will bring some optimism in the sector. The National Investment Board (NIB) which is likely to be cleared by the cabinet shortly will have over-riding powers to grant clearances for large projects which will cut project delays.

Finally greater clarity and conclusion of spectrum allocation will remove ambiguity

The stock currently trades at 1.8x FY13E ABV and 1.6x FY14E ABV. We believe IDFC will get re-rated as its ROE expands and will continue to command premium within its peer group owing to its professional setup, experienced management team and diversified business model. Besides this, the company continues to maintain a cautious stance and has been prudently making provisions to cushion itself against any possible asset quality shocks. We expect a strong outperformance for the stock.

Source : Equity Bulls

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