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Sunday, Sep 22, 2019

Where were you when IFCI languished?

IFCI was once respectfully adorned as the state-owned Industrial Finance Corporation of India, writes N Madhavan.

india Updated: Jan 18, 2007 16:20 IST
The Flip Side | Narayanan Madhavan
The Flip Side | Narayanan Madhavan

I wish I could have written this weeks or months ago. Mea culpa. I am guilty, like many, many people who watch companies, stocks and markets. I am talking about the sudden rise in the price of IFCI shares this year, which have roughly tripled from the year’s low of Rs 8 per share over a period of a few months, while the rest of the country was debating the ifs and buts of what is the right price-earnings ratio for the Sensex or its composite shares.

IFCI is not some teeny-weeny small cap company from the middle of Chattisgarh. It was once respectfully adorned as the state-owned Industrial Finance Corporation of India before shortening its name to IFCI in the post-reform era and going public.

Alas, it shortened its stature as well, as bad loans piled up and the ambition of it possibly matching an ICICI became an idle fantasy. At sub Rs 10, it became a penny share. All that should have made this piece sound like an obituary for the company, but we now know clearly that it is no write-off.

Anybody passing through Delhi’s Nehru Place office district cannot miss the glitzy IFCI Tower, which stands as a symbol of its former glory. At least, that skyscraper should have sent some researchers scurrying to discover the potential of its stock.

But that did not come to pass, because equity analysts probably think in a straight line. They crunched profit and loss numbers or probably did not bother to initiate coverage at all for IFCI in many cases.

Yet, beneath all those bad loans lurked two crown jewel stakes that made the stock bounce like a flamboyant delivery from Sreesanth.

"Excuse me," I said to myself, "What were the analysts doing all this while?"

Earlier this month, when some early shareholders of the National Stock Exchange of India decided to sell some stakes in the bourse company to the New York Stock Exchange, it transpired that one of the sellers was IFCI, and its 7 per cent stake in NSE alone came to roughly Rs 900 crore – equivalent to the then market capitalization of the company, which has since nearly doubled.

The stock had been moving up even before that and the NYSE announcement only made visible the trend. On Wednesday this week, IFCI said it has decided to sell its equity holding of 21 per cent in credit rater ICRA Ltd as part of ICRA’s IPO. The highly respected ICRA is bound to fetch a good price for IFCI.

To be sure, I am still not clear what the rest of IFCI’s balance sheet or profit-and-loss statement look like. Financial service companies can have tricky account books with a labyrinth that involves measuring the liabilities of bonds and assets that may be useless. I also do not know what that towering Nehru Place skyscraper means for IFCI’s financial future amid a real estate boom.

But I am reasonably certain that analysts, industry watchers and researchers had forgotten this stock enough to make it almost join the ranks of worthless penny shares. By and large, the gleam of the stakes it held in NSE and ICRA were just not probed or factored in.

So I ask the analysts: Where were you when the lights went out? You could have got a basement bargain. Given that IFCI is still tied to the government’s apron strings, I would hardly expect any siphoning off of cash or corporate governance problems on disclosures.

A bit of extra research may have led to extraordinary gains for a mutual fund or two. I would certainly like to know the names of fund managers who had good positions in this share, and congratulate them on what could be called a reasonably sound contrarian bet.

In the end, good stock-picking is about deep research and quietly built up positions, not nice sound bytes given to pretty anchors on prime-time television.
Email N

First Published: Jan 18, 2007 16:20 IST