August 1, 2012

230

Infrastructure Development Finance Corporation (NSE: IDFC)

230

225
220

Closing Price

Short

Sell

Reduce

Add

Buy

225
220

215
210

215
210

205
200

205
200

195
190 185 180 175 170 165

195
190 185 180 175 170 165

171.0

173.5

160
155

151.0 137.1

152.5 138.6

160
155

150
145

150
145

140
135

140
135

130
125

130
125

120
115 110 105 100 95 90

124.6

125.8

120
115 110

108.6

110.0

105 100 95 90

85
80

85
80

75
70

75
70

65
60

65
60

55
50

55
50

Feb-12

Sep-12

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Trading bands We expect IDFC to trade in the range of approximately INR 125 and INR 137 per share through August 2012, based on the assumptions that the company would be able to grow its loan book at an annual rate of 25-30%, interest spreads will remain stable and there will be no material deterioration in asset quality. As such, we recommend traders to add to positions at around INR 125-126 and reduce positions at around 136-137. However, if markets were to turn volatile, we expect the downside to be restricted to INR 110 (95% confidence) and upside likely restricted to around INR 150. If such opportunities were present themselves, we recommend long positions at around INR 110 and advise exit from all / most positions at around INR 150. Better still, we'll consider long Put positions in the counter above the INR 150 level. What to watch-out for The company is scheduled to report results for the June quarter on August 14, 2012 and we expect net profit of ~INR 3,800 million, loan book growth of about 30%, and net NPA of no more than 0.25%. Any material deviation from these expectations would prompt us to revisit our valuation range indicated above. In addition, we would watch-out for Government of India's policy measures on infrastructure. Media reports indicate that certain growth-inducing / confidence-boosting measures are imminent; if that were to happen, we will likely revisit our indicated value range, and especially so for IDFC because the company's balance sheet is considerably underleveraged and can grow at a rapid pace if the policy environment is conducive.
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