Multi Baggers

Tourism Finance Corporation of India

Tourism Finance Corporation of India limited was incorporated in 1989. The company provides financial assistance to tourism-related activities/projects in India. The company offers financial assistance to enterprises for setting up and/or development of tourism-related projects, facilities, and services, such as hotels, restaurants, holiday resorts, amusement parks, multiplexes and entertainment centers, education and sports, safari parks, rope-ways, cultural centers, convention halls, transport, travel and tour operating agencies, air service, tourism emporia, sports facilities, etc. In addition, the company offers various research and consultancy services to the tourism industry, which includes project-related services, tourism-related studies/services, and private sector projects.

Specialized focus PSU NBFC:

TFCI specializes in financing of tourism-related activities with ~90% of its exposure towards the hospitality segment. TFCI is a board-driven company with no interference from the promoters (including IFCI) and the government. TFCI is targeting higher balance sheet growth going forward.

Competitive landscape:

TFCI with Rs13bn of AUM, enjoys a market share of 4.75% in the hospitality financing segment. Irrespective of the differential in interest rates, borrower who looks for longer tenure loans and flexible loan repayment schedule prefer TFCI.

Swatch Bharat Extension:

TFCI could be the next big beneficiary of the extension of Swatch Bharat Mission. The major focus is to promote tourism if it's Clean India Clean Ganges that offers a huge potential for Tourism Industry which can be unleashed.

Changing Lifestyle:

There have been a change in spending pattern of rising middle class, From normal cabs to App Based Cabs, spending extended weekends and holidays in resorts spending more on leisure remember our last year pick Thomas Cook Based on the theme we feel the potential of financing the industry is also huge.

Medical Tourism:

This offers big opportunity for Government and Private Sectors. From Yoga it has just given a potential recognition to our capabilities. Medical Tourism in India offers from "Ayurveda" to Best in Class Specialized Hospitals. The sector offers big potential for set up of Infrastructure/tourism etc.

The BIG BET:

Tourism as an Industry and Infrastructure related to tourism is yet to set pace and this is going to be one of the main focus of Government in next 4-5 years. LIC Housing had similar opportunity in 2006-07 when housing finance was just picking .Theme Parks Tourism offers immense opportunity in the space. TFCIL is best positioned in the sector a) it's a government PSU which has potential to be a Mini Ratna b) Offers upto 10-15 years of term loans at rates of 12.5 to 13.5%

Best ROA amongst PSUs:

TFCI reported Return On Assets of greater than 4%, reasons for this was higher NIMs i.e. above 6%, low C/L ratio at 16.5% and relatively lower provisioning. Reasons for lower cost is a) TFCI is a small organization with just 35 member team spread across four departments  - 1) Appraisal/ Sanction, 2) Monitoring/ disbursement, 3) Recovery, 4) Account/ Treasury. Hence company's cost/ asset ratio stood at an average of just 1.2% over last four years. ROA can improve futher once IFCI exits its holding.  A closer look on TFCIL Balance Sheet reflects appx 140 150 crore of unproductive investment in IFCI Mf's etc and small recovery which is likely to happen in 2016 where a large provision is made but since the underlying cover is 2x its exposure management is confident of recovering the accounts meaning better disbursements and higher potential to lend and generate higher ROA's. So on net adjusted basis EPS of Rs 10 for FY-16 cannot be ruled out.

Leverage likely to result in higher RoE:

TFCI's balance sheet is current highly under-leveraged. Its current borrowing is only 2x of net worth which can easily double in the scenario of falling interest rate. They can easily have access to cheaper capital. The capital adequacy ratio is 37.%, with Tier I ratio at 30%. RoE should improve substantially from the current level of 13% over next few years where we see IFCI exit and disposal of unrelated assets as key trigger for rerating  as IFCI exits the overhang on stock will go away. With ROE touching 15.4% as per our estimates in next few years . The stock should trade at higher P/E band. All housing companies used to trade at PE of 4x-5x from 2005-2009 now trades at 13x-15x-20x The huge PE rerating coupled  with higher growth can change the fortune of the stock.

Disclosure (SEBI Registration Number for Aashish Tater :  INA300001206)
 
Stock Ownership - No

Stock traded in Last 30 days ( No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Any arrangement with co. to affect the report write up - No