Tour. Fin. Corp.Ltd - Earlier Report by Sharekhan

Company details

• Price target: Rs47
• Market cap: Rs287 cr
• 52 week high/low: Rs47/10.5
• NSE volume: 5.9 lakh
  (No of shares)
• BSE code: 526650
• NSE code: TFCILTD
• Sharekhan code: TFCI
• Free float: 4.0 cr
  (No of shares)

Shareholding pattern

Price performance
(%)	1m	3m	6m	12m
Absolute	30.5	18.2	179.4	318.1
Relative to Sensex	34.2	1.0	108.4	189.6

TFCI decides to adopt the QIP route
Tourism Finance Corporation of India (TFCI) has announced its plans to issue 3.3 crore equity shares by way of preferential or qualified institutional placement to qualified institutional investors. The issue price has not been decided yet but the price would not be lower than the floor price to be calculated in accordance with relevant Securities and Exchange Board of India (SEBI) guidelines. Based on prevailing market prices the SEBI price comes to Rs38. The capital raising plan is in line with our estimates and hence we have not revised our numbers.

Our estimates factor in capital raising of Rs125 crore in FY2008
TFCI’s current capital base restricts it from bidding for projects in the range of Rs40-50 crore. Hence, to expand its capital base, it is currently considering raising capital from the primary market. We have factored in a capital raising of Rs125 crore by the company in FY2008 at an issue price of Rs42. Based on our issue price and shares to be issued by the company, around Rs137 crore is going to be mobilised which is not going to materially impact our estimates. Hence, we would revisit our numbers after further details regarding the placement are made available.

Future growth prospects remain robust
TFCI is extremely well positioned to benefit from the upturn in the hotel and tourism sectors. The future positives for the company are stated below:

• The robust outlook for the hotel and tourism sectors is directly going to benefit the company, as it is present in the niche segment of financing hotel and tourism sector projects only.
• The enhanced capital base post-placement will allow TFCI to bid for higher projects. This will lead to higher growth in the balance sheet, as the company would be able to leverage the increase in the equity base. All this will ultimately result in higher earnings growth.
• The asset quality of TFCI has improved significantly with almost nil net non-performing assets. This has resulted in lower provisioning requirements and improved profitability.
• The likely launch of a $100-million private equity fund by the company in FY2009 to cater to the hotel and tourism sectors should further enhance its fee income and return on equity (RoE).
• The newfound interest of investors in financial service companies like IFCI in recent times goes to show that investors’ appetite for such stocks is huge. Again, considering the small size of the issue and the niche segment the company caters to, raising funds should not be a difficult task.

Valuation and view
The business fundamentals of the company have improved significantly in the past one year on the back of the capacity expansion planned in the hotel and tourism sectors for the next three to four years. We expect TFCI’s earnings to grow at a compounded annual growth rate of 50% over the period FY2007-10, as it will undertake much higher volume of business after its capital raising exercise in FY2008. At the current market price of Rs42.6, the stock is quoting at 12.6x FY2009E earnings and 1.2x FY2009E book value. We are currently placing a Hold on the stock with a price target of Rs47.

Valuation table
Year to 31 March	FY09E	FY08E	FY07	FY06	FY05
Net profit (Rs cr)	32.8	19.5	14.3	11.9	14.2
Shares in issue (cr)	9.7	9.7	6.7	6.7	6.7
EPS (Rs)	3.4	2.0	2.1	1.8	2.1
EPS growth (%)	0.7	-0.1	0.2	-0.2	0.1
PE (x)	12.6	21.2	20.1	24.2	20.2
Book value (Rs/share)	36.8	33.9	28.2	27.4	25.6
P/BV (x)	1.2	1.3	1.5	1.6	1.7
Adjusted book value (Rs/share)	36.5	33.5	28.2	25.2	15.4
P/ABV (x)	1.2	1.3	1.5	1.7	2.8
RONW (%)	9.5	6.5	7.6	6.6	8.4