Arcil FY06 net zooms 610%; to raise Rs 360 cr

Asset Reconstruction Company (India) (Arcil), the country's first entity engaged in purchase and settlement of bad loans, today reported a 610% rise in net profit in FY06 on the back of  resolution of 52% of total dues during the year.

Arcil's net profit in FY06, the second year of its operation, was Rs 30.83 crore when compared with Rs 4.34 crore a year earlier. During FY06, Arcil completely exited 64 cases with total dues of Rs 2,010 crore and recovered and distributed Rs 827 crore to investors in its security receipts. The rate of return for the investors was 34%.

It acquired 562 non-performing assets (NPAs) from 31 banks and financial institutions involving total dues of Rs 21,144 crore in 2005-06. To fund its growing business, Arcil shareholders today also approved a rights issue of 12 crore shares of Rs 30 each to raise Rs 360 crore. After the rights issue, Arcil's net worth would increase to Rs 478.70 crore.

Arcil said enhancement of capital base would enable it to augment fund raising for cash acquisition of NPAs from the banking system. Arcil has been buying bad loans against issue of security receipts to banks selling the assets. With increased preference among banks to sell their bad assets for cash, Arcil will need to increase its leveraging capacity to keep growing.

Arcil's net profit for FY06 translates into a return on equity of 31% and the company has declared a maiden dividend of 12% for FY06, which will entail an outgo of Rs 100 crore. During FY06, Arcil's total income was Rs 61.33 crore, up from Rs 13.87 crore a year earlier.

Arcil expects accretion to the banking sector's distressed assets to continue. In the US around 1% of the loan book is written off every year. As the economy is on a rapid growth trajectory, CAGR of credit is expected to be in the range of 20% to 30% and this may increase fresh flow of NPAs.