Date: 18 Jan 2018
At the time of writing this post, the government is in the mood to privatize PSUs and IFCI is no exception.
IFCI is a troubled stock with over 7500 crore NPAs and is losing cash.
BUT, there’s a gold lining:
- The government is beating lax and irresponsible babus with a stick and IFCI management is busy optimizing operations. Last year they closed 7 poorly performing branches.
- It is very likely that the government will part-privatize IFCI to make the company efficient. It has made a start with SAIL.
IFCI owns very valuable subsidiaries and rich assets. Let’s discuss these:
- Stock Holding Corporation of India (SHCIL): Needs no introduction to investors. In turn SHCIL owns 2 subsidiaries – (i) SHCIL Services (stock broking) Ltd and (ii) Stock Holding Document Management Services Limited. IFCI holds 53%.
- IFCI Infrastructure Development Ltd (IIDL) – a real estate development company. It also owns a hotel in Delhi (Fraser Suites), commercial and residential properties, and factory lands. IFCI holds 100%.
- IFCI Venture Capital Funds Ltd – fund for startups with focus on rural areas. IFCI holds 99%.
- IFCI Financial Services Ltd (Stock, commodity and currency trading). IFCI holds 95%.
- IFCI Factors (Financing on the basis of accounts receivables). IFCI holds 99%.
- MPCON – Technical and project consultancy. IFCI holds 80%.
- Tourism Finance Corpn of India (IFCI holds 26% stake) – Promotes tourism
- KITCO Ltd – Builds airport infra. IFCI holds 20%.
- INSTITUTE OF LEADERSHIP DEVELOPMENT and MANAGEMENT DEVELOPMENT INSTITUTE– management institutes
- Quoted securities worth 497.23 crores. It owns some cats and dogs and a whole lot of blue chips valued at acquisition cost.
- IFCI owns a lot of unquoted shares that can potentially wipe out a good part of its NPAs, perhaps all of the NPAs. For example, it owns 20,00,000 Clearing Corporation of India Ltd shares at Rs 10 each. Though the valuation of CCIL is not disclosed, its EPS is about Rs 75 and therefore on a conservative basis that each share can be valued at about Rs 1,000.It also owns 1.20 crore shares of NSE at 116. Considering BSE is quoting around 850, NSE should quote much higher.Likewise, IFCI owns crores of shares in unlisted companies – all of which have solid potential. Another example is that of Meta Alloys of which IFCI owns 2.8 crore shares at 19 bucks. Meta Alloys is a significant manufacturer of copper and copper alloys and it is based in Goa. Any one dark horse share when listed can wipe out IFCI’s NPAs.
Total value (at cost) of all of IFCI’s investments is 5,557.40 crores. Applying a very low and rough market value of Rs Rs 100 per instrument gets us 55,574 crores – about 7+ times IFCI’s NPAs.
Rounding up, it makes immense sense to consider making an investment in IFCI because:
1. Government is proactive in controlling its lax management
2. Privatization may be around the corner
3. IFCI owns fantastic assets
4. IFCI can demerge subsidiaries and create massive value for its investors
5. The government’s focus on infrastructure makes it a compelling play in the sector.