IFCI

Yesterday’s breaking news is the discussion paper on new banking licenses put forth by RBI.

Some of the highlights of the discussion paper are mentioned below:

1. RBI is against issuing the license to NBFCs engaged in realty business.
2. Minimum capital requirement is of Rs.300crores.

      3.  The NBFC which plans to get into banking cannot get into lots of activities which

            are banned for banking side.

4. If the foreign holding capital is below 50% then there should be a lock in period

      of ten years.

It is obvious that the new banking licenses are going to generate a lot of excitement in both the corporate world and the equity markets. Needless to say that banking license can be a game changer for many corporates, industrial houses and NBFCs. Hence the opportunity for corporates and institutions to procure a banking license is bound to spur activity amongst the interested entities. From the share market point of view there is bound to be immense speculation on which companies are finally going to get the prized licenses.

As per RBI’s announcement today, to issue new banking licenses, we find IFCI the strongest contender. The company meets all the requirements and parameters listed in the discussion paper. The company is adequately capitalized, does not have a realty business, is in the business of lending for over six decades and does not have the issue of foreign capital holding.

The Industrial Finance Corporation of India (IFCI) was set up in 1948 as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector.  Headquartered at New Delhi and managed by Central Government, the company operates through a wide network of over 27 branches pan India.

The company focuses into project financing along with other financial, leasing and merchant banking services. It provides financing to various sectors and segments like Consumer goods industry (textiles, paper, sugar), Service industries  (hotels, hospitals), Basic industries (iron & steel, fertilizers, basic  chemicals, cement), Capital & intermediate goods industries (electronics,  synthetic fibers, synthetic plastics, miscellaneous chemicals) and to  the Infrastructure Sector (power generation, telecom services).It has also been successfully undertaking and implementing the Government's development projects.

Even if we do not take into account the possible banking license, the company’s fundamentals are very sound. Downside on the stock is limited and we have a one year target of Rs 74 on this stock which represents a nearly 30% upside from the current levels. If and when the banking license comes, the upside target could easily get extended to a triple digit figure.

Hence from the stock market point of view the most exciting pick emerging from today’s discussion paper is IFCI.