CMP = Rs 25
Price target: Rs 30
Result highlights
- For Q1FY2008 Tourism Finance Corporation of India (TFCI) has reported an 86% year-on-year (y-o-y) growth in its profit after tax (PAT) to Rs 1.6 crore.
- The profit growth was aided by improved operating performance and lower provisions. The quarter-on-quarter (q-o-q) comparison has not been presented as we feel it is not relevant for TFCI since most of its earnings are back-ended with the fourth quarter accounting for over 65% of its FY2007 PAT.
- In the first quarter, the net interest income (NII) grew by 40.7% year on year (yoy) to Rs 4.7 crore, mainly driven by a y-o-y decline of 10.3% in the interest expense to Rs 8.2 crore. Going forward, we expect the interest expense to remain subdued due to the limited borrowing requirements of TFCI for FY2008.
- The existing funds coupled with the recoveries and planned capital raising should be sufficient for TFCI's business plans.
- TFCI's operating expenses jumped by 47.8% mainly due to a significant increase in the lease rentals for its office space. The increase had come into effect from October 2006—hence the full impact of the same would keep the operating expenses elevated in FY2008. The operating profit was up by 35.4% to Rs3.8 crore.
- Provisions and contingencies declined by 33.3% to Rs1 crore, reflecting the lower provisioning requirement as the net non-performing asset (NPA) was almost nil and incremental defaults were contained during the first quarter.
- The tax outflow jumped up significantly during the quarter due a higher income and also a higher effective tax rate of 38% for Q1FY2008 compared with 23% in Q1FY2007 and 18% in FY2007. Going forward, the management expects the effective tax rate to decline but the overall tax outflow to remain higher due to a higher income.
- I expect TFCI's earnings to grow at a 32% compounded annual growth rate over the period FY2006-09. The business prospects for the company have improved significantly on the back of the capacity expansion planned in the hotel and tourism sectors for the next three to four years.
- At the current market price of Rs25 the stock is quoting at 6.1x its FY2009E earnings and 0.7x FY2009E book value.
- I maintain Buy recommendation with the price target of Rs 30.
