i Develop Stocks Advisory

IFCI the golden pick of 2008

Nobody can steal the credit from us for IFCI discovery at Rs.11 where the entire world has failed to find this hidden jewel.

When the IFCI stake sell was called off, lot of speculation deliberated in IFCI which we consider as part of the market strategy especially in Govt PSU stocks. We can’t just brush aside the 4 year old memories of BPCL and HPCL disinvestment chronicle. These very stocks are now riding in the Bull phase and becoming the star performers. IFCI is no exception. IFCI will ride the Bull wave the timing could be just the matter.

We broke the price of bidding even before the process started and even never imagined debt conversion story by India’s leading financial institutions. It was like predicting RBI transferring SBI stake to Govt at least 6 months before the event happened.

Last month the stock price of IFCI crashed from Rs.120 to Rs.73 on the news of only one bidder Sterlite consortium stipulating the bid with rider. Though Govt reportedly was ready to pass the management control the price was not acceptable to the bidder and hence the deal was called off. It was off but not dormant for sure. And the share price bounced back very smartly close to its base price of Rs 107.

Very soon the Hon’ble Finance Minister indicated that the process of bidding will start once again though the timing was not made known. This made it one point clear that that process will re start and therefore there will not be any compromise on the price.

In order to counter the corporate raid Govt decided straight to take head with the CORPORATE HONCHO to revalue IFCI and determined to send a clear message that we are here to oblige you by giving some stake at our valuation and you will be better off but if you fail to seize this opportunity then better luck next time but the price is off course 25% more. Yes, Govt played their cards simultaneously by asking IFCI to call bids for selling stakes in cos and allowing FII to corner 74% stake in the co.

We have reached the valuation of listed and unlisted firms to determine the Networth of IFCI which is discussed herein below. FII holds 26% stake in the co and it is Hobson’s choice that FII will try to raise its stake in IFCI a debt free co to at least 49%. Which 26% you will corner then…..? And with scattered holding of FII’s Govt would control even with 26% stake and you will lose the chance of getting the management control for ever.

It can’t be brushed aside that LIC who is holding 14% stake in IFCI could have sought the management control of IFCI at even 145. If LIC has never hesitated to convert its 4 year debt into equity at Rs.107 with it only remaining as a strategic investor, it could not really mind to offer Rs.145 to take the management control of IFCI in toto. However the fact remains IFCI management as well as the FIN MIN is not in favour of handing over IFCI management control to the other Govt agency.

This entire thinking gives rise to the rationale that Govt is decided to part with IFCI management control only at Rs.145 or even higher price in next round of re bidding and for that Govt is instilling the value in IFCI stock through cash realization. This makes us to have a look as to how much cash could be added to IFCI Balance Sheet.

The details of major quoted and unquoted investments are as under:

Cost of Preference shares held Rs.423.70 crs

Cost of Debentures held Rs.1020.63 crs

Cost of Mutual Fund units held Rs.131.40 crs

Cost of Government Securities Rs.400.01 crs

Cost of Unquoted Securities Rs.192.15 crs*

Aggregate value of unquoted investments is Rs 2166 crs. ………A

Quoted (Rs in Crs)	Holding above 10crs
Investment Company Name	No of Eq. Shares	CMP	Current Price
Bank of Baroda	7.40	467.50	34.60
Bharat Immunolog	26.10	70.80	18.48
Chambal Fert.	31.00	85.75	26.58
Energy Devlop.Co	11.00	308.85	33.97
Essar Oil	52.63	336.55	177.13
GHCL	6.95	172.05	11.96
GIC Housing Fin	93.00	98.60	91.70
Graphite India	89.00	85.75	76.32
I D B I	47.00	174.90	82.20
ICICI Bank	0.27	1363.90	3.68
Indo Rama Synth.	27.80	68.75	19.11
Ispat Inds.	131.00	74.30	97.33
ITC	6.24	231.10	14.42
Jayaswals Neco	54.31	62.90	34.16
Jaypee Hotels	6.84	243.40	16.65
JCT	263.90	19.70	51.99
Jhagadia Co	49.00	25.20	12.35
JK Lakshmi	18.19	200.80	36.53
JSW Steel	12.82	1296.00	166.15
Kirl. Ferrous	39.69	90.50	35.92
Lloyd Steel Inds	46.32	31.70	14.68
Nag. Fert & Chem	49.10	80.45	39.50
Noida Tollbridge	36.00	78.20	28.15
PTC	15.00	179.65	26.95
Reliance Capital	4.00	2750.00	110.00
Reliance Communi	6.50	790.00	51.35
Reliance Energy	0.70	2584.00	18.09
Reliance Inds.	6.12	3015.00	184.52
Sr. Rayal. Alka.	180.50	27.50	49.64
SRF	5.84	194.85	11.38
St Bk of India	2.00	2402.95	48.06
STC	4.00	1411.00	56.44
Tata Power Co.	12.95	1612.45	208.81
Tour. Fin. Corp.	145.00	50.30	72.94
Welspun Guj.Stah	42.29	465.00	196.65
Welspun India	60.34	100.80	60.82
Welspun Syntex	318.91	17.76	56.64
I P C L	8.40	483.00	40.57
Ruchi Strips	55.69	23.95	13.34
XL Telecom	5.00	463.10	23.16
Infra.Devlp.Fin	138.95	224.70	312.22
Total			2665.11

Aggregate value of quoted investments above Rs 10 crs per scrip is Rs 2665 crs as of 7^TH Jan 2008.whereas the total comes to Rs 2900 crs …B

The value of unquoted investment includes following major stocks….

NSE------------------------------------ 25 lac shares

Stockholding Corp----------------- 357 lac shares

IFCI Venture------------------------ 60 lacs

IFCI Financial Services----------- 69 lac shares

Malvika Steel------------------------ 31 lac shares

Essar Power------------------------- 450 lac shares

Pratibha Syntex-------------------- 175 lac shares

Discount and Finance corp -------47 lac shares

Asset Core Enterprise-------------- 16 lac shares

Others not discussed not being major holdings as on this date and would review when becomes valuable assets ……

As per the fair valuation of each investment it is expected that IFCI could fetch nothing less than Rs 8000 crs for investments in unlisted firms……C

IFCI is still holding 25 lac shares and the latest price discovery it will be done at Rs 3200 per share which gives value of Rs 800crs.

Stockholding Corp has enterprise value of Rs 9000 crs and IFCI holds 17% stake in Stockholding Corp.

The basis of estimated E V of Stockholding Corp is that it holds stake in NSE worth Rs 1700 crs, it has broking outfit valued at Rs 1500 crs, it has stamp vending contract all over India which is valued close to Rs 3500 crs, other biz such as depository and realty is worth Rs 2300 crs which sum in parts gives E V of at least Rs 9000 crs and 17% stake by IFCI is valued at Rs 1500 crs.

Essar Power just recently announced to sell 10% stake for 600 mn USD to General Atlantic. Essar Power has equity of 598 crs and Networth of Rs 990 crs. It is proposing to expand its 1250 MW power capacity to 3600 MW power capacity for which it is investing 4 bn USD. At this stage the E V is 6 bn SUD and IFCI holds 7.52% stake in the co and by the time Essar Power goes for listing and unlock value the E V will become at least 15 bn USD which means IFCI value in Essar Power is close to Rs 4480 crs.

Pratibha Syntex and few other IFCI babies along with all other petty investments are worth Rs 1300 crs on most conservative basis.

The sum of 800 + 1500 + 4480 + 1300 works out to Rs 8000 crs.

Apart from the same IFCI has 3 hot properties one IFCI House worth Rs 1000 crs Housing Complex in Paschim Vihar worth Rs 1700 crs and others worth Rs 300 crs giving close to Rs 3000 crs as is where is basis. ….D

The sum of parts ( A+B+C+D) is Rs 16100 crs and on the diluted equity is Rs 820 crs it gives a fair price of investment of IFCI at Rs 196 per share.

This price of Rs 196 should be considered a rock bottom justifying the price announced by Govt (heard from market sources) of Rs 145 for management control. It simply carries indirect ownership of NSE Stockholding Corp and Essar Power in the unlisted segment which are set to rise at least 4 time post listing.

We had been successful on IFCI call ever since Rs 11 and would continue to believe that it is still under valued and in view of the fact that Govt has given passage to enter this stock through FII route till 74% whether the management stake is sold or not the value in the co will remain at Rs 196 per share. This makes a clear case of re bidding at Rs 145 at least to give upside of at least 50%.