If at all how does One Play IFCI @ Rs 25 currently ?

On August 25,2012 ,Poonam had inquired on IFCI

“Did any analyst tell investor that after full conversion book value of IFCI stock will be less then 30 per share?”

For wider viewership , I’m reproducing as a seperate post, my response to her on August 29,2012 as below

Hi Poonam

Finally the Government has decided,after a Union Cabinet decision,to convert their Loan and Optionallly Convertible Debentures to Equity at Par ~ Such a huge conversion of Rs 923 crs,will more than double the current Equity of Rs 738 crs and explode it to a level of Rs 1661 crs ~ and that too at just par of Rs 10 means Free Reserves remain unaffected at Rs 3576 crs as at March 31,2012 ~ this mathematically impacts the Book Value immediately by lowering it from Rs 58+ levels to just Rs 31 +

Just last month the long term outlook for IFCI was lowered by a Credit Rating Agency form Stable to Negative ~ IFCI continues to me riddled with Management controversies and run-ins with government and Ministry of Finance ~ it has no real domain expertise or niche in any Operations ~ it boasted of great value over Book of Investments on book in 2007 ~ and this had soared IFCI Share Price to beyond Rs 100 with government looking to bring in a strategic Investor and had even invited bids ~ Corporate Governance Issues and the deliberate non committal stance on the Rs 923 crs conversion then had hassled prospective bidders ~ I remember that the then FM,and who has once again become FM,Mr Chidambaram , boasted that he will revisit the Strategic Investor in IFCI Issue again and get a much higher Price than the lone conditional consortium bid by Sterlite of @ Rs 80 ~ We all know what happened ~ In the intervening years IFCI continues to pay an annual 10% dividend ~ that’s Rs 1 only ,even though it recorded a standalone PAT last year of just under Rs 700 crs giving an EPS close to Rs 9 ~ With the Burst in Equity at par,even the Dividend Paying Capacity will be affected in the future

Last year,because of the possibility and noises being made of IFCI applying to become a Bank under New Banking Guidelines that were awaited then,the price of IFCI moved past Rs 50 again ~ The New Guidleines cut the Dream by notifying that those who carried on any Capital market Activity could not apply to become a Bank ~ IFCI has a Broking subsidiary ~ IFCI Share Price receded to below Rs 25 before some buoyancy earlier this year ~ At Rs 35 to Rs 40 it yet was traded at just 0.6 to 0.7 P/BV ~ After considering the Conversion of Government Loans and OCD impact ,mathematically at 0.6 P/BV IFCI should sink below Rs 20 ! ~ It currently is traded at Rs 23 to Rs 24 !

Government is stuck with IFCI ~ I reiterate that the way I see it is that Government has little choice but to merge IFCI with a bigger and more respected Government FI ~ at the time the Share price of IFCI will move towards adjusted Book Value of Rs 31 + currently ~ Question is how soon will the Government listen to me !~ perhaps the conversion is the first step in this process ! ~

How to play IFCI now? ~ Don’t sell at Rs 23 ~ See it as a Buying Opportunity ? ~ you may want to wait till it falls below Rs 18 unless you’re betting that the merger will be in the short term and bet on it now! ~ I don’t see and major surge in Earnings any soon that normally would guide and Up the Valuation ~ Punters are tired ,as are IFCI Shareholders ~ The extreme Highs and Lows Volatility has unnerved them

Yet there may be an Opportunity beckoning in IFCI for reason mentioned above ! ~ Assess it well to know the Risks involved

Cheers !