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NAKUL AANAND

SEC 1901 B26

COMPANY NAME IDFC

Introduction: IDFC Project Equity is one of IDFC's initiatives in the asset managementbusiness. This was part of a larger venture called the India Infrastructure Financing Initiative,which recognized that the role of the private sector in India's infrastructure development --along with the collaboration of the government of India -- would be significant. To channelinvestment in the right way and with the right kind of support from the government, onewould tie up with an institution like IDFC to take projects forward with foreign capital. Ourfund has both domestic Indian investors and a pool of foreign investors. [It was] backedinitially by IDFC and Citigroup, and then subsequently we raised money from different pools

of international investors.

IDFC is a publicly listed company and part of India's 'Nifty 50' now. It's a leadinginfrastructure finance organization. It was established more than a decade ago but went publicin 2005. It has been in the forefront of policy initiative improvements and advisory work tothe government, as well as in the field of project finance. Initially, these were its two mainarms -- the project finance and the advisory groups -- but now it also hassignificant investment banking and asset management businesses. IDFC Project Equity is partof the asset management business.

Investing in Infrastructure Assets

Infrastructure assets form one of the principal foundations of a modern economy and areessential for achieving sustainable economic growth.

Infrastructure projects create assets and utilities that improve the quality of life for people -the basic necessities of everyday life - clean drinking water, safe modes for transportation,

airports, utilities, power and electricity, hospitals and medical infrastructure, schools andcolleges and other social infrastructure. Infrastructure projects are secured asset classes thatgenerate stable and predictable equity earnings in the long-term. They have built inmechanisms to factor macro-economic issues like inflation and have low to moderate risk

profile. Such projects have high barriers to entry and in the long-term have capital growthopportunities and sustainable competitive advantage.

Infrastructure has historically been financed, built and operated by the Government of Indiadue to the large costs and also due to the monopolistic characteristics of these assets. Thetrend towards private sector financing and development of infrastructure is occurring in Indiatoday. This presents investors with a significant opportunity to invest in the foundation of a

rapidly expanding economy through funding the development of new infrastructure or the

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acquisition of operational assets alongside private sector developers from the Government ofIndia.

The strong level of economic growth achieved in India in recent years has led to an expansionof industry, commerce and per-capita incomes. This in turn has fuelled demand for

infrastructure services including energy, transportation, telecom, water supply and otherurban infrastructure.

In comparison, the level of investment in infrastructure as a percentage of GDP declinedsubstantially from a peak of 6% in the early 1990's to a 30 year low of 3.3% of GDP in2003 4. Since 2003, investment in infrastructure has recovered and is estimated to increase to4.8% of GDP by 2009 5.

India Infrastructure Investment (as a percentage of GDP)

Source : Broker research gross capital formation in energy, airports, seaports, roads andtelecom has been used as a proxy for infrastructure spending.

The Government of India has recognised the importance of infrastructure development andprivate sector capital to sustain long-term economic growth. It estimates an investment needin the region of USD 500 billion over the coming five years, predominantly in the power andtransport infrastructure sectors. To support this target, the Government of India hasintroduced a number of measures supportive of private sector investment. Such measuresinclude the removal of restrictions on foreign direct investment, changes to legislation,introduction of model concession agreements and provision of financial assistance to increasethe attractiveness of investment in the sector.

RBI

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Mumbai, June 24 (PTI) Infrastructure Development Finance Company (IDFC) today said theReserve Bank has classified the company as an infrastructure finance company, which willhelp the term lender access cheaper resources. IDFC has been classified by the Reserve Bankof India as infrastructure finance company within overall classification of Non BankingFinance Company (NBFC), the term lender informed the Bombay Stock Exchange.

The status given to the company would allow it mobilise funds at lower cost and getflexibility in the infrastructure lending, sources said. In February, RBI had created a separateentity for NBFC -- Infrastructure Finance Companies (IFCs)-- as infrastructure plays acriticalrole in the growth of economy.

IFCs are not subject to the borrower limits, which restrict NBFCs from lending to any singleborrower by 10 per cent of its owned fund, and any single group of borrowers by 15 per centof its owned fund. Recently, RBI allowed these companies to raise money from overseasmarkets through the automatic route.

As such, IFCs can now raise external commercial borrowings (ECBs) up to 50 per cent oftheir owned funds automatically. So far, they could do so only under the approval route.

Shares of IDFC was trading at Rs 170.80, up 1.4 per cent on the Bombay Stock Exchange.

INFLATION

The global financial crisis has an impact on the Indian economy and the infrastructuresectors. Liquidity is constrained and the cost of capital has gone up. Risk aversion results inflight to quality and that will result in access to capital being restricted to the larger andhigher quality companies although the cost of capital - both debt and equity - has gone upsignificantly even for these companies.

The mid-cap and SMEs will face greater constraints and their growth plans will be impacted.The infrastructure landscape will see similar issues, which could result in restructuring of

projects under implementation and delays in completion of projects because of the limitedaccess to capital. The capital needs for infrastructure development in India are large and willrequire domestic and international capital, which will be difficult to obtain cost effectivelytoday.

Over the medium to longer term, the Indian growth story is very much intact and once thereis stability and confidence among investors and lenders, financing for infrastructure will bemore forthcoming.

The liquidity crunch will result in a slowdown in infrastructure development - because ofaccess to capital being limited and cost of capital having increased dramatically. Manyinfrastructure projects that were in the pipeline will find it difficult to achieve financialclosure because of the limited availability of risk capital and debt financing.

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Domestic inflation, interest rates and shortage of liquidity further exacerbate the problem ofavailability of financing and the cost of capital. Over the medium term, the situation willstabilise and financing will be more easily available for Indian infrastructure.

Infrastructure development is the key to sustaining healthy GDP growth in India. If we focus

on expediting infrastructure development in India, we will not only maintain a healthy GDPgrowth rate, but emerge much stronger when global economic growth picks up. The pace ofinfrastructure development must pick up.

FDI

The Government of India, international foreign institutions and private retail and corporateentities comprise our shareholders. This exceptional shareholding pattern, with the GOIholding over 22%, demonstrates our unique location on the firmament of financialinstitutions in the country. The large FDI/ FII shareholding is further proof of our strictadherence to best practices of corporate governance and financial accountability.

Shareholding Pattern (Sept 30, 2008)

FII

Infrastructure Development Finance Company Ltd (IDFC) is planning to raise $ 500 millionby through equity or quasi-equity instruments. The board of IDFC has also approved FIIshareholding limit in IDFC from 49% to 74%.

Meanwhile the company has posted a net profit of Rs 85 crore as compared to Rs 73.5 crorethus registering a growth of 16.4% in the fourth quarter of the financial year ended on March

31, 2007. Total Income has increased from Rs 257 crore to Rs 410 crore during the reportingperiod. For the entire fiscal year 2006-07, the company has reported a net profit of Rs 462.8

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crore for the year as compared to Rs 375.6 crore recorded in the previous year, reflecting agrowth of 23.21%.

Total Income has increased from Rs 1002.8 crore for the year ended March 31, 2006 to Rs1505.7crore for the year ended March 31, 2007. The balance sheet size of the company has

grown by 50% over the fiscal year 2006-07 to Rs 17,982 crore while loan book increased by37% to Rs 14,150 crore.

INDUSTARY ANALYSIS

The company posted a good first quarter result for its core business in line with expectationsof strong loan book growth

IDFC saw its balancesheet expand 25% y-o-y to Rs 38,612 crore during April June 2010,while the loan book grew by almost 40% to nearly Rs 29,000 crore. Operationally, it was a

busy quarter as loan approvals tripled over the same period last year to Rs 13,046 crore and

loan disbursements quadrupled to Rs 6,204 crore.

Operating income was up 31% y-o-y over the same period last year to Rs 613 crore led by38% y-o-y net interest income growth to Rs 337 crore in the quarter. Non-interest incomewas up 22% in the same period to Rs 266 crore, boosted by capital gains of Rs 120 crore

booked from principal infrastructure investments (up 77% y-o-y). However, assetmanagement income dipped 10% y-o-y to Rs 65 crore as mutual fund fee income wassubdued. Institutional broking income saw a steep decline of 33% y-o-y to Rs 14 crore astrading volumes and margins were down in line with industry where income dipped about 5-15% in this period. However, the investment banking business saw a boost of around 20% y-o-y to Rs 22 crore this quarter,

Spreads proved quite resilient to the tightened liquidity environment at 2.7% on a trailing 12-month (TTM) basis, similar to Q4FY10 as the company tapped the long term bond market.Operating expenses were up 20% y-o-y with cost to income ratio dipping to 25.3% (TTM)compared to 26% in Q4FY10, which was impacted by unexpectedly higher bonus payouts. Amarginally lower effective tax rate also propped up bottomline with PAT showing a 23% y-o-y growth to Rs 335 crore.

There was sharp increase in loan- loss provisioning to Rs 45 crore paralleling the higherdisbursements this quarter as the company typically has provision coverage of around 1.7%of total disbursements on a trailing 12-month basis. Portfolio quality continued to be robustwith gross NPAs flat sequentially q-o-q compared to end-March 2010 disclosure on absoluteterms but improving as a ratio of total advances at 0.27% while net NPA ratio was 0.15%.

The company was given infrastructure finance company status in the quarter, which is a keyhighlight and will help diversify its liability profile through ECBs (upto 50% of its networththrough the automatic route) and through tax free infra-bonds. Currently, only 8% of fundingis through forex loans, and IDFC has indicated that it is looking to tap ECB although the costadvantages on a fully swapped basis are marginal. Given that the tax- free bonds have a ratecapped at the government bond rate of similar tenure and as LIC and IFCI, L&T infra andPFC are also entering this space, the relative market opportunity and resultant cost benefit is

expected to be marginal.

http://www.smartinvestor.in/company/comp_22265-Infrastructure_Development_Finance_Company_Ltd.htmhttp://www.smartinvestor.in/company/comp_22265-Infrastructure_Development_Finance_Company_Ltd.htm

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The management has guided that it should be able to maintain its spreads at current levels.While stressing that spreads have historically expanded in a rising rate cycle, it cautioned thatthe initial phase of the cycle usually sees some compression. The current environment withhigher cost of deposits for banks, tight liquidity and exposure limits for banks should preventaggressive competition from banks on loan pricing, according to management. The company

maintained its guidance for loan growth at 30% CAGR levels over the next few years.

IDFC is is set to aggressively pursue the immense infra opportunity and has recently raisedRs 3,500 crore of Tier 1 capital including preferential issue of Compulsorily ConvertiblePreference Shares (CCPS) to Khazanah for Rs 380 crore and Actis for Rs 460 crore. TheCCPS have cash dividend component of 6% per annum and can be converted into equityshares anytime during the next 18 months at a conversion price of Rs 176 per share. CARcurrently is about 26% against RBI mandated requirement of 15%.

The stock is down 1% in trading today to Rs 184.40 levels at a P/B valuation of 2.8xconsensus analyst estimates of FY11 BVPS

Comparison with Competitors

Profit & Loss account ------------------- in Rs. Cr. -------------------

Key Financial Ratios of Infrastructure Development

Finance Company

------------------- in Rs. Cr.

-------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share 1.00 1.00 1.20 1.20 1.50

Operating Profit Per Share (Rs) 8.13 12.69 18.13 23.53 25.34

Net Operating Profit Per Share (Rs) 8.92 13.33 19.50 25.58 27.45

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Free Reserves Per Share (Rs) 6.99 8.16 23.46 25.51 28.06

Conclusion:

As you see that dividend per share is increasing.Well idfc is performing very well with itscompetitors.and due to sustainable growth the stock price of idfc will go up. As a investor iwant to invest in idfc and also see a market boom in future.