Friday, February 26, 2010

>India Infoline Limited (ICICI DIRECT)

Next delta missing for steep growth…
India Infoline (IIFL) has diversified its core business of equity broking to a widespread bunch of financial services. Broking revenues contribute ~55-60% to the total topline, financing income ~22-23% while insurance distribution & online media contribute 10% to the total income. IIFL commands ~3.7% market share of total market volumes clocking Rs 3700 crore daily volume and generates higher-than-industry average yields of ~8 bps due to higher share from the retail segment (~60% of total turnover). We expect IIFL to maintain a stable market share. This will lead to revenue CAGR of 14% (FY12E Rs 1431 crore) and PAT CAGR of 19% (FY12E-Rs 246 crore).

Higher broking yields to help 17% CAGR in broking income
IIFL has a market share of ~3.7%. With the anticipated average daily market turnover rising from current levels of Rs 90,000-95,000 crore to Rs 1,20,000-1,25,000 crore by FY12E, we believe yields will stabilise around 8 bps (comparatively higher than peers). This should help it to generate brokerage income at 17% CAGR over FY09-FY12E to Rs 844 crore.

Financing business to be driven by margin funding, LAS
We expect the financing book to grow from the current Rs 1200 crore to Rs 1480 crore by FY11E and Rs 1710 crore by FY12E implying 21% CAGR over FY09-FY12E. Margin funding, which constitutes ~40% of the funding book will allow yields to be maintained at 15-16%. This will enable 13% CAGR in NII to Rs 333 crore by FY12E.

Higher operating leverage leads to lower than peers EBIDTA margins
EBIDTA margin fell from 33% and 39% in FY07 and FY08, respectively, to 30% in FY09. The margins are lower compared to listed peers on account of higher proportion of owned branches resulting in higher operating ratio of approximately 18%. The company has lately shifted to the blended model, which will improve its EBIDTA margin to 32% by FY12E.

At the CMP of Rs 111, the stock is ruling at 13.3x and 12.8x its FY11E and FY12E EPS, respectively. The stock has historically traded at a premium to market multiples due to its diversified revenue stream and higher than industry blended yields of ~8 bps. RoEs are expected to stay in the range of 13-14% in the next two years. Since we do not expect steep rise in bottomline till FY12E, we have not ascribed any premium to the market multiple (15x FY11E EPS) thereby valuing the stock at Rs 121/share.

To read the full report: INDIA INFOLINE