JP Morgan on IDFC

JP Morgan initiates coverage on IDFC with an `Overweight’ rating. JP Morgan believes that IDFC will be a strong beneficiary of India’s infrastructure boom, helped by regulatory tailwinds and strong markets. They expect the strong rerating to continue. The cliché suits IDFC well. Its strong investments in developing domain expertise in infrastructure are now expected to pay off. Not only is it the leading specialist in infrastructure financing, but its product suite is all encompassing, which gives it a competitive edge as well as strong long-term RoEs. The downgrade by CRISIL in July ‘09 was a setback, but the special status as an infrastructure lender (being contemplated by the RBI) could negate that problem. JP Morgan now factors in tier 1 CAR (capital adequacy ratio) reaching 16%. IDFC is not cheap at 2.6x P/BV (FY11E), but this still underestimates the long-term growth potential of the company. JP Morgan thinks that IDFC can grow its balance sheet at about 25% for five years or more, and that this is not fully captured in the current valuations.