Tuesday, November 17, 2009

[Investors] TFCI: Price target: Rs28 Current market price: Rs23


  • Tourism Finance Corporation of India (TFCI)?s net profit for Q2FY2010 grew by 11% year on year (yoy) to Rs5.4 crore, ahead of our estimate of Rs4.6 crore. The net profit for the quarter rose on the back of higher than expected growth in the net interest income (NII) and provision write-back of Rs1 crore. 
  • The NII for the quarter increased by 15.8% yoy to Rs12.7 crore in Q2FY2010 from Rs11 crore in the corresponding quarter of the last year (Q2FY2009). This was mainly due to a 15.7% year-on-year (y-o-y) increase in the interest income. Notably, the NII on a sequential basis grew by a robust 71%. The healthy sequential growth primarily stemmed from a combination of a 27.3% quarter-on-quarter (q-o-q) increase in the interest income and an 8.4% reduction in the interest expended.
  • The operating expenses remained more or less flat at Rs2 crore during the quarter. The flattish growth in the operating expenses coupled with a strong top line growth led the cost to income ratio to improve by 230 basis points yoy to 15.6%. Thus the operating profit grew by a healthy 18.8% to Rs10.8 crore in Q2FY2010 vs Rs 9crore in Q2Y2009.
  • The depreciation charges during the quarter fell by 24.7% yoy to Rs48 lakh vs Rs63 lakh in the year-ago quarter due to lower depreciation on account of buildings purchased vs that in the year-ago quarter. 
  • In the quarter the company wrote back provisions of Rs1 crore on account of recovery in the non-performing assets (NPAs).
  • The tax rate of the company increased by a hefty 1,380 basis points yoy to 51.8% due to write-back of provisions on NPAs which now come under the tax bracket. 
  • In Q2FY2010, the company registered a robust growth in its disbursements which increased by 15% yoy and ~25% qoq. However, the growth in sanctions remained muted and stood more or less in line with the previous year?s level at approximately Rs300 crore. 
  • The asset quality improved substantially during the quarter with the gross absolute NPAs coming at Rs21 crore, indicating a sequential improvement of 36% and a year-on-year (y-o-y) improvement of over 50%. Notably, at the net level the company maintained zero net NPA status.
  • While we draw significant comfort from the zero NPA status of the company, the current credit demand environment for tourism industry in general and hotel industry in specific remains weak. Besides the weaker demand, TFCI would face increased competition from banks due to regulatory changes. In line, we are revising our earnings estimate downwards by 6.5% and 7.9% for FY2010 and FY2011 respectively. At the current market price of Rs23, the stock trades at 5.6x its FY2011E adjusted earnings per share (EPS) and 0.6x its FY2011E book value. We maintain our Buy recommendation on the stock with a revised price target of Rs28.
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