Why IFCI Share Price is Rising

Indian share markets have been under pressure off late due to a confluence of factors.

Billionaire Gautam Adani's indictment in a bribery case by US Securities and Exchange Commission (SEC), latest escalations in the Russia-Ukraine war and a weak sentiment across global markets have weighed on Indian markets.

However, there are a few individual stocks that are witnessing an uptrend in their share price. One of them is IFCI.

Shares of the company are up more than 19% over the last month.

Let's find out why...

IFCI Soars 15% as Board Approves Merger of IFCI Group of Companies

Shares of IFCI skyrocketed 14.7% after the board of directors of the firm approved the merger of the IFCI group of companies.

The action was taken in response to a message the Ministry of Finance's Department of Financial Services (DFS) sent to the company asking it to think about consolidation of IFCI Group.

According to the filing, VFCI Infrastructure Development, IIDL Realtors, StockHolding Corporation of India, and IFCI Factors will all merge with IFCI at the corporate level.

A single company that is a direct subsidiary of the consolidated listed firm will be formed by the merger of StockHolding Services, IFCI Financial Services, IFIN Commodities, and IFIN Credit.

The consolidated listed business will include direct subsidiaries, including StockHolding Document Management Services Ltd, StockHolding Securities IFSC Ltd, IFIN Securities Finance Ltd, IFCI Venture Capital Funds Ltd, and MPCON Ltd.

Weak Asset Quality Hampers Profitability

While the stock is up over the last month on merger prospects, the company's fundamentals tell another story.

IFCI has reported a degrowth in its sales over the last five years. The company has also reported a net loss from 2019-2023. While the business saw a turnaround in FY24, the company's financial health still remains weak.

It's asset quality continues to weaken with gross non-performing assets (NPA) and net NPA ratios deteriorating 96% and 84% as of June 2024 respectively.

Although the provision coverage ratio (PCR) has improved, a large proportion of the NPAs are under the National Company Law Tribunal (NCLT), and some are undergoing restructuring or resolution.

Despite the Government of India's equity infusions of Rs 5 bn in both FY23 and FY24, the company's CRAR (capital to risk-weighted assets ratio) remains negative as of 31 March 2024.

Thus, a substantial quantum of capital infusion will be required to have healthy levels of CRAR.

What Next?

As per Reuters, IFCI Ltd will be shutting its lending operations following capital constraints and converting it into an infrastructure advisory firm.

As per the plan, IFCI won't resume lending and will instead expanding the scope of its infrastructure advisory services to include evaluation for state governments' infrastructure and green projects.

The government plans to infuse Rs 5 bn into IFCI this year, and any further capital infusion will be to ensure there are no defaults in repayment commitments of IFCI. The revival plan also includes monetising IFCI's real estate assets and renting its office spaces.

How IFCI Share Price has Performed Recently

In the past month, shares of the company have gained over 19%.

The stock has risen over 100% in 2024 and gained around over 150% in the year gone by.

The stock touched its 52-week high of Rs 91.4 on 25 July 2024 and a 52-week low of Rs 24.16 on 28 November 2023.

At the current price, the company trades at a price to earnings multiple of 113 and price to book value multiple of 2.78.

About IFCI

IFCI, previously known as Industrial Finance Corporation of India, is an Indian government owned non-banking finance company that caters to the long-term finance needs of the industrial sector.

The company was established in 1948 and provides financial support for various kinds of projects such as airports, roads, telecom, power, real estate, manufacturing, services sector and such other allied industries.

It has provided financial assistance to projects such as Adani Mundra Ports, GMR Goa International Airport, Salasar Highways, NRSS Transmission, Raichur Power Corporation etc.

For more details about the company, you can have a look at the IFCI fact sheet and quarterly results on our website.

For a sector overview, read our finance sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...