IFCI Ltd: A must buy at Rs.41-42

The government had established IFCI in 1948, to cater to the long-term finance needs of the industrial sector.  There were reports in media, that the Indian non-banking finance company IFCI Ltd is all set to garner around Rs.1 billion (Rs.100 Cr) via tax saving infrastructure bonds to finance infra projects. As per the offer document, the issue comprises Rs.1 billion plus unspecified green shoe option.

Moreover, in order to protect the financial health Public Sector Banks (PSBs) and financial institutions, the Government (in Budget 2012-13) has also proposed to provide a sum of Rs.15,888 crore for capitalisation of PSBs, Regional Rural Banks (RRBs) and other financial institutions including NABARD. Also, the Government is also considering a possibility of a creating a financial holding company to raise resources to meet the capital requirements of PSBs under examination. Besides, in order to make the banking payment structure at par with global standards, a comprehensive action plan has been prepared for implementation in 2012-13. 

In addition to this, the Government in Budget, 2012-13, has also focused on Infrastructure and industrial development: Recognizing the fact that adequate infrastructure is a major constraint on our growth; the Government has followed a strategy to increase investment in infrastructure through Public Private Partnerships (PPPs). During the 12th Five Year Plan investment in infrastructure is expected to go up to Rs.50 lakh crore with half of this, expected to be from private sector. Since Viability Gap Funding (VGF) is important instrument to attract PPP, this year budget 2012 has proposed to make irrigation (including dams, channels and embankments), terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector eligible for VGF under this scheme. Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF. 

For the present year tax-free bonds worth Rs.30,000 crore were announced for financing infrastructure projects. This limit is now proposed to be doubled in Budget 2012 to Rs.60,000 crore in the fiscal year 2012-13 (by including Rs.10, 000 crore for NHAI, Rs.10,000 crore for IRFC, Rs.10,000 crore for IIFCL, Rs.5,000 crore for HUDCO, Rs.5,000 crore for National Housing Bank, Rs.5,000 crore for SIDBI, Rs.5,000 crore for ports and Rs.10,000 crore for power sector). Similarly, for rural infrastructure development a proposal has also been made for enhancing the allocation under Rural Infrastructure Development Fund (RIDF) from Rs.5,000 at present to to Rs.20,000 crore.

With the doubling of the financing limit for financing infrastructure projects, the markets might witness a host of tax-free bond issues to be launched in the next fiscal. IFCI Ltd has already issued one and the money would be used to finance infra-project. 

Therefore, buy IFCI Ltd at Rs.41-42, T--Rs.65, SL--Rs.39.  This target is for the medium term. Once the RBI starts to cut interest rates, which is probably from the middle of next months, the banking counters would literally shoot. Therefore, taking positions in this space, before it runs ahead of  you.

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