Edelweiss Buy on- Tourism Finance Corporation of India Ltd
Loan book to grow at healthy rate: We expect TFCI to report healthy credit growth as fresh capex is expected in the tourism industry. Hotel industry reported 3.9% supply growth while demand increased by 10.5% in FY16, which resulted in a significant jump in occupancy rate to 67-68%. Increasing occupancy level will create demand for new hotel in next two years. We expect 25% loan growth over FY16-18E on back of strong demand for new hotels. We believe the diversification of loan book will provide the stability in long term.Asset quality to improve: Company reported a very healthy asset quality between FY08 and FY15 but in FY16 asset quality deteriorated significantly. The absolute gross non-performing asset (GNPA) of the TFCI was INR 159 crore by March 2016. In Q1FY17, company recovered INR 20 crore and we expect INR 30-35 crore recovery/resolution/up-gradation in Q2FY17 and INR 100 crore recovery/up-gradation/resolution by the March 17, translating outstanding GNPA to INR 55-60 crore by March 2017.Healthy sanctions & disbursement: TFCI reported an average of INR 697 crore sanctions and INR 462 crore disbursements over FY12-16. During the H1FY17, the total sanctions and disbursement stood at INR 1000 crore and INR 600 crore. We expect 50% and 60% growth in sanctions and disbursement over FY16-18 to INR 1,442 crore and INR 973 crore respectively.Margin is expected to remain under pressure:TFCI has been reporting a very healthy NIM as interest outflow is slightly lower due to lower leverage. We believe the incremental disbursement will increase the leverage which will have the marginal impact on the net interest margin (NIM). Currently TFCI’s NIM stood at 5.78% which is expected to fall by 49 bps over FY16-18 to 5.29%.RoE to improve: Gradual decline in leveraging ratio and healthy advance growth is likely to boost the profitability. Company has been reporting slightly low RoE due to high equity. We expect net profit to report 16% CAGR over FY16-18E to INR 72 crore in FY18. Currently TFCI is reporting 10.8% RoE, which is expected to improve to 12.33% in next two years.
In FY16, hotel industry reported 3.9% supply growth while demand growth was 10.5%, which resulted in a significant jump in occupancy rate to 67-68%. We expect fresh capacity addition requires in next two years. Considering the initiatives of central Govt. such as ‘Make in India, Smart-cities, Ease of Doing business and Digital India, we believe demand for hotel room will increase substantially.
At CMP of INR 66 per share, stock is trading at 0.9x FY17 adjusted book value (ABV) and 0.8x FY18 ABV. We believe the healthy credit growth and incremental capital borrowing from money market will enhance the profitability. Hence we have a positive outlook.
Loan book to grow at healthy rate: We expect TFCI to report healthy credit growth as fresh capex is expected in the tourism industry. Hotel industry reported 3.9% supply growth while demand increased by 10.5% in FY16, which resulted in a significant jump in occupancy rate to 67-68%. Increasing occupancy level will create demand for new hotel in next two years. We expect 25% loan growth over FY16-18E on back of strong demand for new hotels. We believe the diversification of loan book will provide the stability in long term.Asset quality to improve: Company reported a very healthy asset quality between FY08 and FY15 but in FY16 asset quality deteriorated significantly. The absolute gross non-performing asset (GNPA) of the TFCI was INR 159 crore by March 2016. In Q1FY17, company recovered INR 20 crore and we expect INR 30-35 crore recovery/resolution/up-gradation in Q2FY17 and INR 100 crore recovery/up-gradation/resolution by the March 17, translating outstanding GNPA to INR 55-60 crore by March 2017.Healthy sanctions & disbursement: TFCI reported an average of INR 697 crore sanctions and INR 462 crore disbursements over FY12-16. During the H1FY17, the total sanctions and disbursement stood at INR 1000 crore and INR 600 crore. We expect 50% and 60% growth in sanctions and disbursement over FY16-18 to INR 1,442 crore and INR 973 crore respectively.Margin is expected to remain under pressure:TFCI has been reporting a very healthy NIM as interest outflow is slightly lower due to lower leverage. We believe the incremental disbursement will increase the leverage which will have the marginal impact on the net interest margin (NIM). Currently TFCI’s NIM stood at 5.78% which is expected to fall by 49 bps over FY16-18 to 5.29%.RoE to improve: Gradual decline in leveraging ratio and healthy advance growth is likely to boost the profitability. Company has been reporting slightly low RoE due to high equity. We expect net profit to report 16% CAGR over FY16-18E to INR 72 crore in FY18. Currently TFCI is reporting 10.8% RoE, which is expected to improve to 12.33% in next two years.
In FY16, hotel industry reported 3.9% supply growth while demand growth was 10.5%, which resulted in a significant jump in occupancy rate to 67-68%. We expect fresh capacity addition requires in next two years. Considering the initiatives of central Govt. such as ‘Make in India, Smart-cities, Ease of Doing business and Digital India, we believe demand for hotel room will increase substantially.
At CMP of INR 66 per share, stock is trading at 0.9x FY17 adjusted book value (ABV) and 0.8x FY18 ABV. We believe the healthy credit growth and incremental capital borrowing from money market will enhance the profitability. Hence we have a positive outlook.
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