IFCI: From Government Burden to Investment Opportunity

The article explores the transformation of Industrial Finance Corporation of India from a perceived loss-making entity to a potential investment prospect.

Honestly, the first thought that crossed my mind when I heard about IFCI is that it’s a loss-making Government company so why even bother studying it. And the price jump looked too superficial to even consider putting our hard-earned savings into it.

But then my mentor told me to have a closer look in the business. That’s the fun of having someone be your guiding light, they show you what you miss.

That’s when I saw the company going through a Turnaround!

The little voice in my mind got negative and told me that a government company always goes through a turnaround when a new political party comes to power. There’s nothing new.

And again, my mentor told me to have a closer look rather than being so skeptical.

Here’s what I found on first glance!

Profits – IFCI turned posted a net profit of Rs 241 crores after 5 years of consecutive losses.

Promoter buying – Government has put up additional liquidity of Rs 400 crores by purchasing more shares in the company.

That’s when I initiated my study on the stock.

IFCI is short for Industrial Finance Corporation of India. Now, it’s not a rocket science to understand the reason for which this company was incorporated.

It’s primary reason for existence was to fund some ongoing government projects allotted to private companies. And since there’s so much corruption in the entire process, IFCI was designed to fill the pockets of politicians.

Day light robbery of tax-payers money to be precise. Because the central government in their annual budget decides how much money should be allocated to this company.

So, for a shareholder the road ahead was dark. And now, there’s light at the end of the tunnel.

Slowly, the company is transitioning to being an advisory company. During the FY 2022-23, IFCI did not sanction or distributed any new loans. On the contrary, the company actively pursued recovery from non-performing assets or bad loans & security receipts to the tune of Rs 714 crores.

But still, the road to recovery is far. Here’s a list of their outstanding loans and advances to their customers.

50% of the loans comprise of diversified infrastructure, power generation and road construction. We are seeing a revival in these sectors and hence there’s a hope that the money will be recovered from these entities sooner or later.

But here’s the catch!

Turnarounds are a double-edged sword. When they are correctly executed by the management, there’s a good chance investor will reap in solid returns. But they can be messy too and lose a lot of investor’s wealth in the entire process.

That’s why most investors prefer to stay away. Even the brokers ask their clients to allocate a mere 0.1% of the portfolio in such stocks.

Risk is always associated with capital loss. Just because turnarounds display a lot of risk, investors perceive a high degree of capital loss.

So now, let me talk about the factor that eased my nerves around risk in the company.

1. In FY 2023, the Government of India infused Rs 400 crore by subscribing to the share capital. A solid move of liquidity for the Advisory business.

2. In a landmark move, IFCI has been appointed as the Nodal Agency/ Project Management Agency for the Production Linked Incentive Schemes (‘PLI’).

PLI Schemes have been specifically designed to boost domestic manufacturing in sunrise and strategic sectors, curb cheaper imports and reduce import bills, improve cost competitiveness of domestically manufactured goods, and enhance domestic capacity and exports.

3. The company has been empaneled as the sole consultant with Technology Development Board, Maharatna and Navratna Companies to undertake due diligence / project appraisal of funding proposals.

4. IFCI through its subsidiary Stock Holding Corporation of India Limited (SHCIL), is making contribution in promotion of digital economy in the country.

a. SHCIL besides being the Country’s largest premier custodian in terms of assets under custody, and provides post trading and custodial services to institutional investors, mutual funds, banks, insurance companies, etc.

b. It acts as a Central Record Keeping Agency for collection of stamp duty, e-court fee and e-registration.

5. Stock Holding Document Management Services bagged a prestigious project of National importance and has developed a CRCS Sahara Refund Portal for processing claims of genuine investors of Sahara Cooperative Societies.

6. IFCI Venture Capital Funds Limited, another subsidiary of IFCI, is promoting social sector initiatives of Government of India for encouraging entrepreneurship amongst socially backward groups in the country.

Nutshell

We can see that the company has transitioned from the high-risk business to the least risk one. It’s a great news for investors. Plus, the government has put up enough working capital for the next 3 years, so the existing loans going bad will not have an impact on the new businesses of the company.

We have initiated our thoughts on the stock with the same. The numbers will get better with time, and we will be tracking it consistently. Readers can expect further development on this stock in future.

Disclaimer – This is meant for educational purposes only. In no way, this has to be considered a stock tip. Please consult your financial advisor before investing.