Clear Insider going on in IFCI ~ it has zoomed today to close up 13% + at Rs 32 on heavy volumes of 1.5 cr shares on BSE and nearly 6.5 cr shares on NSE
In fact it has recovered smartly 30% inside a fortnight from levels of below Rs 25
On September 6,2012 I had blogged on IFCI as below and hinted of an opportunity…asserted not to sell at Rs 23 and perhaps wait for it to go below Rs 20 before committing funds to it unless you expected specific quick catalysts ~ it never dropped below Rs 20 !
Clearly the Investors who have married IFCI today on a grand wedding scale know something…… such volumes and price rise cannot be explained by just Deccan Chronicle approaching IFCI to withdraw a winding up petition and agree to a payment schedule or that the CRR cut of 25 basis points will increase the value of IFCI Investments in Financial Institutions or even short covering on scale !….there is a more deeper and specific reason ~ government seems to have made up it’s mind on what to do with IFCI !
If At All How Does One Play IFCI @ Rs 25 Currently ?
September 6th, 2012
One fundamental expert on TV is recommending exiting IFCI on this recovery ~ I would not be in this hurry !
The financials are being impacted by the OCDs of Rs 923 crs held by the government ~ they are two issuances here ~ Rs 523 crs OCDs bear a nominal interest of 0.1% and mature on March 28,2023 ~ Rs 400 crs OCDs bear an interest coupon rate of 9.75% and mature on October 30,2021 ~ Government can convert these at par and assume a controlling interest of 55.57% in IFCI
Latest Reports are that IFCI is planning to raise debt of Rs 2500 crs this year and repay Rs 400 crs OCDs to the government to try remain a private company on paper atleast ~ If this happens then the Equity moves up only to Rs 1261 crs and not Rs 1661 crs on the conversion of only the Rs 523 crs OCDs at par ~ The Book Value which on conversion of the full Rs 923 crs OCDs at par would have reacted to Rs 31,will now react only to Rs 38 ~ This alone cannot explain the surge to Rs 32 today as the adjusted P/BV at 0.84 is higher than the average of 0.6 seen in recent times
Methinks the government has decided to merge it with a stronger Financial PSU ! ~ Insiders would know this and their action may have run up the scrip smartly today !
I cannot see any other strong reason to explain the run up in IFCI today !
So don’t be surprised when the Government makes any such announcement shortly !
In any case I don’t see IFCI being traded at a premium over Book ! ~ at Rs 32 it is on par with a Book of Rs 31 if full Rs 923 crs are converted to Equity at par and must react from here ~ however if the conversion is lower on only Rs 523 crs OCDs the Book becomes Rs 38 and the Price to Book is above 0.8
What if IFCI returns all of the Rs 923 crs back to the government with the latter allowing it to do so ! ? ~ the current Book of Rs 58 will then move over Rs 60 with FY 13 retained earnings ! ~ that a Price to Book over just 0.5 ! ~ gives the Price room to recover back past Rs 50 then !
Aha ! Insiders know what the Government’s action is going to be !
IFCI surely is living up to the dubious acronym of I F….d Countless Investors ! ~ earlier it had earned the tag of I F….d the Country of India !