TFCIL

8/10/2019 TFCIL

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Sector: Financials

Sector view: Positive

Sensex: 28,335

52 Week h/l (Rs): 65/21

Market cap (Rscr) : 482

6m Avg vol (‘000Nos): 560

Bloomberg code: TFCI IN

BSE code: 526650

NSE code:

TFCILTD

FV (Rs): 10

Prices as on Nov 21, 2014

Company rating grid

Low High

1 2 3 4 5

Earnings Growth

RoA Progression

B/S Strength

Valuation appeal

Risk

Share price trend

0

100

200

300

Nov‐13 Mar‐14 Jul‐14 Nov‐14

TFCIL Sensex

Share holding pattern

(%) May‐14 Jun‐14 Sep‐14

Promoter 66.9 66.9 66.2

Insti 0.5 0.8 1.0

Others 32.6 32.3 32.8

Rating: BUY Target: Rs80

CMP: Rs60

Upside: 32.2%

Tourism Finance Corp Ltd.

November 24, 2014his report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated

y 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and

pinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

Research Analyst:Rajiv Mehta

[email protected]

Exercised caution though moderated growth contained asset qualityrisks

Tourism Finance Corp (TFCIL), a niche financier of tourism related projects and

activities, has witnessed a sharp moderation in loan growth from 32% in FY12

to just

1%

in

FY14.

Of

the

current

loan

book

of

~Rs12bn,

~90%

is

credit

to

the

hospitality sector and ~10% is exposure to other tourism/entertainment

related activities. Amid slowdown in the economy, substantial increase in land

prices and FSI related issues, TFCIL deliberately decided not to extend financial

assistance to hospitality projects with weak fundamentals and rather laid more

emphasis on strengthening asset monitoring mechanism. Currently, 90% of

hospitality sector exposure is to operational hotels. TFCIL has been able to

restrict Net NPLs within 1% of loans.

Growth to pick up; spreads to be sustained

With

viability

gradually

improving

within

hospitality

industry

(excess

supply

being absorbed, occupancy rates bottomed and ARRs stabilized), TFCIL intends

to resume growth in calibrated fashion. It is also keen on taking over loans

from banks that are looking to exit due to ALM issues. Off ‐late, company has

been disbursing corporate loans to its hospitality customers (but with minimum

BB rating) for renovation and other purposes. On the whole, management

expects to disburse Rs8bn (Rs3bn+ YTD; Rs3.5bn in FY14) during FY15 and

Rs10bn in FY16. The year‐end loan book is targeted at Rs15bn+ and Rs20bn+

respectively. With Tier‐1 CAR at 37%, TFCIL is well capitalized for growth.

Company is also confident of maintaining spreads at 3.5% ‐ blended lending

yield is

at

13.3%

and

funding

cost

at

9.8%.

Available at deep discount considering strong profitabilityTFCIL is estimated to retain RoA above 4% in the medium term while RoE is

expected to surpass 15% by FY16 on the back of increase in balance sheet

leverage. Given strong profitability and improving growth and credit risk

environment, valuation of the stock is at bargain 0.9x FY16 P/ABV.

Financial summary

Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E

Total operating income 939 1,065 1,227 1,525

Yoy growth (%) 32.1 13.5 15.3 24.2

Operating profit (pre‐provisions) 784 887 1,040 1,306

Net profit 555 585 677 809

yoy growth (%) 12.2 5.4 15.7 19.5

EPS (Rs) 6.9 7.2 8.4 10.0

Adj. BVPS (Rs) 52.0 54.1 58.6 66.3

P/E (x) 8.8 8.3 7.2 6.0

P/Adj.BV (x) 1.2 1.1 1.0 0.9

ROE (%) 13.9 13.7 14.6 15.3

ROA (%) 4.3 4.2 4.5 4.4

CAR (%) 36.9 38.0 33.5 27.8

Source: Company, India Infoline Research

8/10/2019 TFCIL


Tourism Finance Corp Ltd.

Company BackgroundTFCIL was incorporated in January 1989 by IFCI along with other All‐India Financial/Investment Institutions and

Nationalised Banks with the purpose of providing financial assistance to enterprises for setting up and/or

development of tourism‐related projects, facilities and services. Company extends long term loan assistance

based on debt‐equity ratio not exceeding 1.5:1. TFCI charges floating rate of interest linked to its base rate

which

presently

stands

at

12.75%.

The

applicable

interest

rate

is

worked

based

on

rating

of

the

borrower

either

from an approved external rating agency or through internal rating mechanism. Company provides financial

assistance only to borrowers with minimum ‘BB’ rating. TFCIL also offers fee based services to both private and

government clients such as consultancy with respect to identification, conceptualization, implementation,

promotion of specific tourism‐related projects and for taking policy level decisions for investment and

infrastructure augmentation.

During FY12‐14, TFCIL’s loan assets grew marginally driven in part by management’s cautious growth stance.

Despite deterioration in the operating environment, company was able to contain slippages by taking proactive

steps and regular follow up with borrowers. As on March 31, 2014, it had NIL Net NPLs. TFCIL, therefore, has

been successful in sustaining RoA at robust 4%+.

Key Questions

Despite being in operations for many years, why is TFCIL loan book small at ~Rs12bn?

What is the segmental loan profile? Could you provide details about the type and quantum of exposure that

the company typically takes?

In the core hospitality projects financing space, what are the key differentiators of TFCIL vis‐à‐vis

competition?

Could you elaborate on the cautious growth strategy that company followed over the past couple of years?

Despite fresh disbursements, TFCIL’s loan assets did not grow materially over FY12‐14 suggesting significant

repayments and prepayments. Can you throw some light here?

Can one expect the quantum of prepayments to come‐off in coming quarters?

What are the targeted disbursements for FY15 and FY16 and how do you plan to achieve it? How important

role would loan takeover/re‐financing play in this?

What is the borrowing mix and has company started to witness any cost easing? How would the recent

25bps reduction in Base Rate impact spread in ensuing quarters?

TFCIL had NIL Net NPLs at the end of FY14 in spite of significant stress within hospitality industry, what does

the management attribute this to? What were the Gross and Net NPLs as at Sept 30, 2014?

How would the implementation of new NPL recognition guidelines impact NPL levels in coming years?

What will be the stock of restructured assets currently? Any restructuring pipeline?

What according to the company is sustainable long term RoA and RoE for the business?

Could you clarify on the news that promoter IFCI wants to divest further stake in TFCIL?

8/10/2019 TFCIL


Recommendation parameters for fundamental reports:

Buy – Absolute return of over +15%

Accumulate – Absolute return between 0% to +15%

Reduce – Absolute return between 0% to ‐10%

Sell – Absolute return below ‐10%

Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified

by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise

specified by the analyst

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report

also

includes

analysis

and

views

expressed

by

our

research

team.

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report

is

purely

for

information

purposes

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TFCIL