In a country where infrastructure is acutely insufficient and inefficient, a company that is focused on core sector funding and project implementation can be expected to do good business. The Infrastructure Development Finance Corporation (IDFC) is one such company. It has a stellar list of promoters-the Indian government, IDBI, HDFC, SBI, UTI, ICICI Bank and the ADB.

IDFC aims to be the company of choice for future core sector projects. The public issue is a combination of a fresh issue of shares and an offer of sale for existing shares (see graphic).

Even though infrastructure projects across sectors like power, telecom and roads are taking wing, IDFC's business is largely dependent on interest income from its funding operations. This accounted for 72.8 per cent of the company's total income in 2004-5. Therefore, IDFC's future can be impacted by volatility in interest rates.

Interest rates are sensitive to several factors, including the monetary policies of the RBI, deregulation of the financial sector, domestic and global economic and political conditions. In its red herring draft prospectus, the company says it hedges its exposure by aligning the interest rates on its disbursements to the interest rates on the funds it raises. In the past, IDFC has been blamed for being too cautious. But experts say that the company has been judicious and has not rushed to fund projects where returns or the project's viability were not assured.

IDFC's books show that over the past four years, its net loans have grown at a compounded rate of over 50 per cent. The company is one of the largest private funder of infrastructure projects in the country with a corpus of Rs 844 crore. The operating income constitutes 94 per cent of total income and return on assets is 4.3 per cent. IDFC is also a zero NPA company.

However, it is likely to face competition from banks which are aggressively funding infrastructure projects at competitive rates because they have low cost deposits. SBI's p/e (the ratio of price to earnings) is around 8, while for IDFC it will be more than 11 at the issue price of Rs 34. This means that compared to its earnings, SBI's shares are cheaper than IDFC's. But brokers remain bullish on IDFC. Manish Shah, head of equities and derivatives at Motilal Oswal, says, "The issue is fairly priced with a forward PE ratio of 12.2."

The above information and analysis is only for reference
and should not be taken as a recommendation.

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