Result Update

November 8, 2011
Rating matrix
Rating Target Target Period Potential Upside : : : : Dropping Coverage NA NA NA

India Infoline Limited (INDINF)

| 71
WHATS CHANGED
PRICE TARGET................................................................................................................ NA EPS (FY12E)................................................................................................................. | 4.3 EPS (FY13E)................................................................................................................. | 6.5 RATING........................................................................................................................... NA

Key Financials
| crore Total Revenues EBITDA PAT FY10 1123.9 437.3 232.0 FY11 1472.0 604.8 211.7 FY12E 1592.3 685.1 123.5 FY13E 1864.9 908.7 185.9

Pain continues: no respite seen

India Infoline (IIFL) disappointed with lower than estimated PAT of | 22.5 crore, declining 59% YoY and 19% QoQ. The topline grew 21% YoY to | 410 crore boosted by finance income almost doubling to | 228 crore. Surging gold loan portfolio has remained the key driver for total loan book growth of 29% sequentially to | 5040 crore. Currently brokerages are unable to maintain yields due to increased F&O volumes. IB and AUM based services are expected to remain subdued as the market environment is unfavourable. Hence, we believe the underperformance of the sector will continue. We are, therefore, dropping coverage on the stock and the sector. Market share dips after several quarters to 3.6%... IIFL could just maintain its volumes at | 5200 crore (same in Q1FY12) on an average daily basis as compared to an increase of 9% reported by market, leading to market share declining to 3.6% from 4% sequentially. However, the management indicated their cash market share remained stable leading to overall yields remaining around 3.6 bps (calculated). Equity broking fees of | 138 crore was down 15% YoY, up 4% QoQ. Volumes in commodity broking are also picking up to | 1780 crore, growth of 171% YoY and 62% QoQ. With declining cash volumes and an uncertain global environment, we expect brokerage revenues to decline YoY to | 487 crore by FY13E as against total topline growth expected at 12% CAGR to | 1865 crore due to increased finance income. Loan book growth remains strong, reaches | 50 bn The financing book got shored up to | 5040 crore from | 3900 crore in Q1FY12. Loan against gold now forms 22% of the loan book, 53% is the mortgage portfolio while 23% is capital market based lending. We expect financing income to grow at 38% CAGR over FY11-13E to | 1178 crore and contribute 63% in FY13E total income.

Valuation summary
FY10 EPS (|) PE (x) BV (|) PBV (x) RoCE RoNW ROA (ROI) 8.1 9.1 56.3 1.3 16.3 14.9 9.3 FY11 7.4 9.9 58.1 1.3 14.2 13.3 2.9 FY12E 4.3 17.2 61.3 1.2 11.8 7.4 1.0 FY13E 6.5 11.4 66.2 1.1 13.1 10.4 1.4

Stock data
Market Capitalisation ADT (Q2FY12) Market share (Q2FY12), reported (%) 52 week H/L Equity capital Face value DII Holding (%) FII Holding (%) | 2143 crore | 5200 crore 3.6 | 124/62 | 58 Crore |2 4.6 35.7

Price movement
7,000 5,000 3,000 1,000 Aug-11 Nov-11 Dec-10 Jun-11 Feb-11 Apr-11 140 120 100 80 60 40 20 0

Valuation
We expect PAT growth to remain subdued reaching | 185 crore by FY13E. Return ratios for the sector are expected to remain subdued in 810% range. Weak capital markets are likely to keep IB and other fee based businesses under stress. Hence, sector underperformance will continue.
Exhibit 1: Financial Performance
| Crore Total Income EBIDTA EBIDTA margin (%) PAT PAT margin (%) Q2FY12 410.8 161.0 39.2 22.0 5.4 Q2FY12E 376.5 156.2 41.5 30.0 8.0 Q2FY11 339.8 135.7 39.9 54.1 15.9 Q1FY12 359.6 139.4 38.8 27.3 7.6 YoY Gr.(%) 20.9 18.7 (73 bps) -59.3 (1055 bps) QoQ Gr.(%) 14.2 15.5 44 bps -19.3 (223 bps)

India Infoline (R.H.S)

Nifty (L.H.S)

Analysts name
Kajal Gandhi kajal.gandhi@icicisecurities.com Mani Arora mani.a@icicisecurities.com

Source: Company Quarterly Presentation, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Contribution of various business segments in total income

120 100 80 (%) 60 40 35.9 36.8 49.0 42.8 41.9 50.8 55.6 13.6 14.9 10.2 12.1 12.5 11.6 10.3

Share of equity broking continues to decline. Now it is at 33.8% of total revenues in Q2FY12. Rising loan book has increased finance income proportion to 55.6%

20 0

50.4

48.1

40.7

44.8

45.4

37.3 Q1FY12

33.8 Q2FY12

Q1FY11

Q2FY11

Q3FY11

Q4FY11

FY11

Equity brokerage

Financing and Investment

Marketing & online media

Source: Company Quarterly Presentation, ICICIdirect.com Research

Exhibit 3: Market share dips to 3.6% from 4%

7000 6000 5000 (| crore) 4000 3000 2000 1000 0 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q1FY12 Q2FY12 FY08 FY09 FY10 FY11 FY12E FY13E 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

ADT

Market share (RHS)

Source: Company quarterly presentation, ICICIdirect.com Research

Exhibit 4: Contribution of equity brokerage and related income to total revenues to slide down
Contribution is sliding down because of falling yields and volumes, on the one hand, and rising interest income on the other
(| Crore) 600 588 400 200 0 FY12E FY13E FY07 FY08 FY09 FY10 FY11 454 231 615 670 509 488 50 (%) 40 30 20 800 60

Equity brokerage

Contribution to total revenues(RHS)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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(%)

Exhibit 5: Loan book growth discomforting during uncertain market conditions

Surging gold loan portfolio has remained the key driver for total loan book growth of 29% sequentially to | 5040 crore. Gold loan book stands at | 1109 crore as on Q2FY12
6890 937 956 922 910 1200 1630 1950 2500 2970 3290 3900 5040 FY12E 1151 5390 Q1FY10 Q2FY10 Q3FY10 Q1FY11 Q2FY11 Q3FY11 Q1FY12 1544 1974 2301 2671 1210 1375 1396 Q2FY12 936 1075 684 98 78 50
Mortgage FY10 Q1FY11 Personal incl gold loan Q2FY11 Q3FY11 Q4FY11 8000 7000 6000

(| Crore)

5000 4000 3000 2000 1000 0

Source: Company, ICICIdirect.com Research

Loan against gold now forms 22% of the loan book, 53% is mortgage portfolio while 23% is capital market based lending.
Exhibit 6: Gold loan branch expansion strong 800 branches already in place
3000 2700 2400 2100 1800 1500 1200 900 600 300 0

(| Crore)

30

165

468

831

Capital Market related Q1FY12 Q2FY12

Source: Company, ICICIdirect.com Research

Broking yields are falling and incremental interest income is coming from borrowed funds leading to lower spreads, thus capping bottomline growth

Exhibit 7: EBIDTA margin constant due to interest income

60 50 (%) 40 30 20 Q1FY11 Q2FY11 Q3FY11 Q1FY12 Q2FY12 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

936

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1131

1159

FY13E

FY08

FY09

FY10

FY11

Exhibit 8: Delta for PAT growth missing pressure to continue

250 200 160 232 211 186 145 124 76

(| Crore)

150 100 50 0

FY12E

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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FY13E

FY07

FY08

FY09

FY10

FY11

ICICIdirect.com coverage universe (Broking)

Edelweiss Capital Idirect Code EDECAP Mcap (| Cr) India Infoline Idirect Code Mcap (| Cr) MOFSL Idirect Code Mcap (| Cr) 1802 INDINF 2072 MOTOSW 1281 CMP Target Upside (%) CMP Target Upside (%) CMP Target Upside (%) 24 FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E NP (| Cr) 233.0 140.3 182.2 213.0 124.0 168.6 137.1 96.6 121.9 EPS (|) 3.1 1.9 2.4 7.4 4.3 5.9 9.6 6.7 8.5 PE (x) 7.7 12.9 9.9 9.5 16.4 12.1 9.3 13.2 10.5 P/BV (x) 0.8 0.7 0.7 1.2 1.2 1.1 1.2 1.1 1.0 RoNA (%) 3.1 1.4 1.7 2.9 1.1 1.4 7.5 5.1 5.8 RoE(%) 10.8 6.4 7.8 13.3 7.4 9.5 13.2 8.3 9.6

71 -

89 -

*Adjusted for bonus and stock split, UR-Under Review

Exhibit 9: Recommendation History

200 150 100 50 0 Nov-10 May-11 Aug-11 Mar-11 Nov-11 Dec-10 Jun-11 Feb-11 Sep-11

Price

Target Price

Source: Bloomberg, ICICIdirect.com Research

Exhibit 10: Recent Releases

Date 9-Feb-11 8-Apr-11 25-May-11 5-Jul-11 8-Aug-11 5-Oct-11 Event Q3FY11 Result Update Q4FY11 Result Preview Company update Q1FY12 Result Preview Q1FY12 Result Update Q2FY12 Result Preview CMP 67 83 76 87 75 70 Target Price 70 70 81 82 80 75 Rating Add Sell Hold Hold Hold Hold

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps / midcaps, respectively; Buy: Between 10% and 15%/20% for large caps / midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com ANALYST CERTIFICATION
We /I, Kajal Gandhi CA Mani Arora MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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