IFCI back in black with Rs 1000 cr net

After many years of being in the red, term lending institution IFCI is on the verge of announcing a major turnaround with a profit of around Rs 1,000 crore for financial year 2006-07. The turn-around is accompanied by several changes including a new man at the helm of the company. Indian Economic Service officer Atul Kumar Rai will be take over as the new Chief Executive Officer. Rai is currently a director in the Banking Division of the Union Finance Ministry and also sits on the Board of IFCI.

A key target for Rai will be to sustain the revival of the company and develop viable business model. Consultant firm Ernst & Young has already been roped in to find a strategic partner for the company, a process that would take at least two months time, official sources said. Several global financial majors like Citigroup and Barclays have expressed interest. The stake is likely to go to a company which can help IFCI to scale greater heights.

Till December 2006, IFCI had a net profit of Rs 229 crore. In the January-March quarter of 2007, the company raked in Rs 800 crore from a seven per cent stake sale in the National Stock Exchange and about Rs 30 crore by divesting its entire stake in ICRA. About Rs 200 crore of non performing assets are also understood to have been recovered in the last quarter of 2006-07. "The profit will be more than Rs 1,000 crore in 2006-07," said a source. It had made a loss of Rs 74 crore in 2005-06 and Rs 324 crore in 2004-05. According to the data available on the Bombay Stock Exchange, IFCI has been losing money since 2000-01.

The sudden realisation that IFCI is turning black has led to a 135 per cent increase in the share price - to Rs 33 as on March 30 from Rs 14 as on January 8, 2007.

The company's accumulated losses stood at Rs 4,600 crore till March 31, 2006. Out of that the company has made recoveries of Rs 1,000 crore in 2006-07. The company has made loan and other recoveries of about 1100 crore in 2006-07. The aggregate recovery of Rs 2,100 crore is higher than the target of Rs 2,000 crore set for 2006-07.

The accumulated losses will be wiped out very soon as the company has hidden unlocked values in its investments, which can generate Rs 6,000 crore cash anytime. The company has immediate realisable investment of Rs 2,000 crore.

IFCI is in the process of selling Malavika Steel Plant, estimated to fetch close to Rs 600 crore. The 750 acres of land of the Malavika Steel at Sultanpur (UP) can fetch it around Rs 800 crore at the lower end and Rs 2000 crore at the higher end.

Similarly, the company is in the process of selling the land, building, plant and machinery of Hitech Electro Thermics & Hydro Power Ltd. All these will materialise in the early part of 2007-08.

With economy growing at a higher rate and steel, cement and textile sectors looking up, the company is likely to make substantial recoveries from such sectors.IFCI's investments in subsidiaries, associate companies, assisted companies and strategic investments is expected to generate very high returns as many of them are doing very well. IFCI is also understood to have very attractive real estates, which is worth Rs 1,000 crore.

"With money constantly flowing to the institution from investments and the proposed infusion of fresh capital by the strategic investor, the aim is to have a sustainable business model," the sources said. The strategic investor is likely to be given 26 per cent stake.

The strategic investor will bring professional expertise to broaden the basket of products from term lending to retail lending, corporate lending and investment banking, the official said.