Shares of infrastructure financing company Infrastructure Development Finance Co. Ltd (IDFC) have underperformed the broader market for quite some time now. This trend continues even after IDFC reported a 19% increase in December quarter net profit to Rs320.7 crore from a year ago. Since then, the financier’s shares have declined some 6% relative to the Sensex.
That’s because investors are still sceptical about the earning prospects of the firm, at least in the near term. While the December quarter numbers looks good compared with a year ago, there is a decline from the quarter ended September, pointing to a moderation in growth.
IDFC itself admitted as much in an interview with Reuters two days ago. Executive director Vikram Limaye told the newswire that “given the macro situation, the interest rate environment, political situation…investment cycle is likely to see some slowdown”.
That slowdown is also reflected in its books at the end of December. While IDFC reported year-to-date loan growth of 40% till the end of the fiscal third quarter, the pace has eased in recent times. In the three months ended December, loan growth came in at 2% from a quarter ago.
Gross approvals have declined 81% since the end of the September quarter, while disbursements have dipped 54%. At the end of December, undisbursed loans stood Rs17,965 crore, about half of IDFC’s current infrastructure advances. That’s mostly because of slippages in project executions, especially in the road sector, due to problems in land acquisition and environmental clearances.
Growth in the loan book will also not be helped by rising interest rates. Besides, the tightness in liquidity is lingering longer than expected. That will put pressure on the financier’s margins as well over the next two-three quarters. Overall spreads (for a rolling 12-month period) at the end of December fell to 2.4 percentage points, about 30 basis points lower than at the end of the last fiscal year.
Sure, the budget may bring some cheer to investors if the government steps up infrastructure spending. However, given the track record in project executions, especially in roads, what investors will welcome more would be a plan of implementation.
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