NAKUL AANAND

SEC 1901 B26

COMPANY NAME IDFC

Introduction: IDFC Project Equity is one of IDFC's initiatives in the asset management
business. 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 channel
investment in the right way and with the right kind of support from the government, one
would tie up with an institution like IDFC to take projects forward with foreign capital. Our
fund has both domestic Indian investors and a pool of foreign investors. [It was] backed
initially 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 leading
infrastructure finance organization. It was established more than a decade ago but went public
in 2005. It has been in the forefront of policy initiative improvements and advisory work to
the government, as well as in the field of project finance. Initially, these were its two main
arms -- the project finance and the advisory groups -- but now it also has
significant investment banking and asset management businesses. IDFC Project Equity is part
of the asset management business.

Investing in Infrastructure Assets

Infrastructure assets form one of the principal foundations of a modern economy and are
essential 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 and
colleges and other social infrastructure. Infrastructure projects are secured asset classes that
generate stable and predictable equity earnings in the long-term. They have built in
mechanisms 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 growth
opportunities and sustainable competitive advantage.

Infrastructure has historically been financed, built and operated by the Government of India
due to the large costs and also due to the monopolistic characteristics of these assets. The
trend towards private sector financing and development of infrastructure is occurring in India
today. 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
acquisition of operational assets alongside private sector developers from the Government of
India.

The strong level of economic growth achieved in India in recent years has led to an expansion
of industry, commerce and per-capita incomes. This in turn has fuelled demand for
infrastructure services including energy, transportation, telecom, water supply and other
urban infrastructure.

In comparison, the level of investment in infrastructure as a percentage of GDP declined

India Infrastructure Investment (as a percentage of GDP)

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

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

RBI
Mumbai, June 24 (PTI) Infrastructure Development Finance Company (IDFC) today said the
Reserve Bank has classified the company as an infrastructure finance company, which will
help the term lender access cheaper resources. IDFC has been classified by the Reserve Bank
of India as infrastructure finance company within overall classification of Non Banking
Finance 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 get
flexibility in the infrastructure lending, sources said. In February, RBI had created a separate
entity for NBFC -- Infrastructure Finance Companies (IFCs)-- as infrastructure plays acritical
role in the growth of economy.

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

As such, IFCs can now raise external commercial borrowings (ECBs) up to 50 per cent of
their 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 infrastructure
sectors. Liquidity is constrained and the cost of capital has gone up. Risk aversion results in
flight to quality and that will result in access to capital being restricted to the larger and
higher quality companies although the cost of capital - both debt and equity - has gone up
significantly 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 limited
access to capital. The capital needs for infrastructure development in India are large and will
require domestic and international capital, which will be difficult to obtain cost effectively
today.
Over the medium to longer term, the Indian growth story is very much intact and once there
is stability and confidence among investors and lenders, financing for infrastructure will be
more forthcoming.
The liquidity crunch will result in a slowdown in infrastructure development - because of
access to capital being limited and cost of capital having increased dramatically. Many
infrastructure projects that were in the pipeline will find it difficult to achieve financial
closure because of the limited availability of risk capital and debt financing.
Domestic inflation, interest rates and shortage of liquidity further exacerbate the problem of
availability of financing and the cost of capital. Over the medium term, the situation will
stabilise 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 GDP
growth rate, but emerge much stronger when global economic growth picks up. The pace of
infrastructure development must pick up.

FDI

The Government of India, international foreign institutions and private retail and corporate
entities comprise our shareholders. This exceptional shareholding pattern, with the GOI
holding over 22%, demonstrates our unique location on the firmament of financial
institutions in the country. The large FDI/ FII shareholding is further proof of our strict
adherence 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 million
by through equity or quasi-equity instruments. The board of IDFC has also approved FII
shareholding 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 crore
thus 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 reporting
period. For the entire fiscal year 2006-07, the company has reported a net profit of Rs 462.8
crore for the year as compared to Rs 375.6 crore recorded in the previous year, reflecting a
growth of 23.21%.

Total Income has increased from Rs 1002.8 crore for the year ended March 31, 2006 to Rs
1505.7crore 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 by
37% to Rs 14,150 crore.

INDUSTARY ANALYSIS
The company posted a good first quarter result for its core business in line with expectations
of strong loan book growth

IDFC saw its balance–sheet 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 by
38% y-o-y net interest income growth to Rs 337 crore in the quarter. Non-interest income
was 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, asset
management income dipped 10% y-o-y to Rs 65 crore as mutual fund fee income was
subdued. Institutional broking income saw a steep decline of 33% y-o-y to Rs 14 crore as
trading 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. A
marginally 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 higher
disbursements 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 robust
with gross NPAs flat sequentially q-o-q compared to end-March 2010 disclosure on absolute
terms 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 key
highlight and will help diversify its liability profile through ECBs (upto 50% of its networth
through the automatic route) and through tax free infra-bonds. Currently, only 8% of funding
is through forex loans, and IDFC has indicated that it is looking to tap ECB although the cost
advantages on a fully swapped basis are marginal. Given that the tax- free bonds have a rate
capped at the government bond rate of similar tenure and as LIC and IFCI, L&T infra and
PFC are also entering this space, the relative market opportunity and resultant cost benefit is
expected to be marginal.
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 that
the initial phase of the cycle usually sees some compression. The current environment with
higher cost of deposits for banks, tight liquidity and exposure limits for banks should prevent
aggressive 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 raised
Rs 3,500 crore of Tier 1 capital including preferential issue of Compulsorily Convertible
Preference Shares (CCPS) to Khazanah for Rs 380 crore and Actis for Rs 460 crore. The
CCPS have cash dividend component of 6% per annum and can be converted into equity
shares anytime during the next 18 months at a conversion price of Rs 176 per share. CAR
currently 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 2.8x
consensus analyst estimates of FY11 BVPS
Comparison with Competitors

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

------------------- 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
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 its
competitors.and due to sustainable growth the stock price of idfc will go up. As a investor i
want to invest in idfc and also see a market boom in future.