IDFC: Financially sound

A robust increase in fee-based income drove the financial institution's growth in Dec quarter.

IDFC reported high growth in the December 2007 quarter due to the robust increase in its fee-based income. However, the profit growth was affected by high operating costs and provisions.

Total income more than doubled (up 114 per cent) to Rs 370 crore due to doubling of income from treasury, advisory fees and profit on the sale of proprietary equity.

Income from the brokerage company SSKI also boosted the total income. The company increased its stake in SSKI from 67 per cent to about 80 per cent during the quarter.

The infrastructure business witnessed a robust growth of 44 per cent in net interest income and stable margins of around 3 per cent.

However, operating profit grew by only 100 per cent to Rs 306 crore due to 233 per cent jump in the operating costs. Staff costs tripled, following the consolidation of SSKI. The net profit (after minority share) growth, which stood at 74 per cent, was affected by the high provisions for taxes.

Nevertheless, the company witnessed strong growth in assets at the end of December 2007. Its balance sheet size increased by 59 per cent to Rs 25, 903 crore and approvals, disbursements and loan book grew 60 per cent, 53 per cent and 43 per cent to Rs 14,853 crore, Rs 8,401 crore and Rs 19,242 crore respectively. Similarly, its treasury and proprietary assets increased at a phenomenal rate.

The company is aggressively expanding the AUM of its private equity business, which has been flat in the last two quarters.

The company is targeting $3 billion AUM in two-three years from the current $680 million. Moreover, its other fee-based income is expected to witness strong growth and profits will improve over a period of time as costs rationalise after the full integration of SSKI. However, the stock looks fairly valued at 4.5 times its FY09 estimated book value.

Sintex Industries: Solid state

Sintex Industries continued its robust growth in the December 2007 quarter largely driven by its plastics business. Its standalone sales jumped by 41 per cent to Rs 388 crore and operating profit almost doubled to Rs 76 crore, thus improving operating margins by 540 basis points to 19.6 per cent.

The plastic division's sales grew by 55 per cent to Rs 296 crore, while profit before interest and tax (PBIT) more than doubled to Rs 59 crore.

The plastics division mainly consists of pre-fabs (plastics and concrete structures used in telecom shelters and portable toilet boxes), monolithic construction (low cost housing) and custom moulding (used in the auto component and electrical business).

The company's consolidated financials in Q3 FY07 are not comparable with the previous year since the company made several acquisitions such as Nero Plastics, Bright Brothers' automotive plastic business, Nief Plastic and Wausaukee Composites during the quarter.

The consolidated operating margins slipped by 80 basis points to 13.2 as the benefits of the acquisitions would be reflected in the next financial year.

At a price of Rs 529, the stock trades at 17 times and 13 times its estimated earnings for FY09 and FY10 respectively. While these valuations may appear high, aggressive inorganic expansion has brought in new applications and user industries.