The rating agency, ICRA, has downgraded the long-term rating of IFCI from ‘stable’ to ‘negative’ because of its concerns over the financier’s “vulnerable” asset portfolio.
ICRA, which incidentally use the word ‘vulnerable’ five times in as many lines, notes that IFCI is very dependent on the capital market condition remaining high. This is because two-fifths of IFCI’s credit portfolio is in the form of promoter funding (loan against shares). IFCI also has sizeable investments in unquoted shares and convertible instruments.
In assigning the rating, “ICRA has taken note of a reduction in IFCI’s promoter funding portfolio from Rs 7,040 crore (44 per cent of total credit portfolio) as on March 2011 to Rs 5,890 crore (39 per cent of total credit portfolio) as on June 30, 2012, and the management’s intention to reduce the same.”
ICRA also notes that IFCI’s profitability in the last three-four years was helped by recovery of money from old NPAs. This stream of income declined in 2011-12 and is likely to further decline in the coming years, it says.
In 2011-12, IFCI made a net profit of Rs 663 crore. Each equity share earned Rs 8.99. On the BSE today, the IFCI share is trading at around Rs 39.