Tourism Finance Corporation of India Ltd (TFCI) was set-up in 1989 with the objective to expedite the growth of tourism infrastructure in the country by providing dedicated line of credit on long term basis to tourism related projects. It provides financial assistance to tourism-related projects, such as hotels, resorts, restaurants, amusement parks, etc, primarily in the form of long-term loans and also by investing in such company’s debentures, equity, preference shares, etc. Since FY12, consequent to change in Memorandum of Articles, TFCI has also started lending to other sectors such as infrastructure and solar power. TFCI has successfully played the role of investment catalyst for the tourism sector and has cumulatively sanctioned assistance aggregating over Rs. 9,000 cr to 822 projects as at the end of FY17.
- Erstwhile Government owned FI promoters divest their stake and new large shareholders come in
- Organisational transformation could result in re-rating
- Lending activity to pick up
- Upgradations to result in asset quality improvement
- Incoming shareholders may not be able to immediately influence the policies of TFCI and drive faster growth
- Sluggish inbound or domestic travel and Declining room rentals delaying projects
- Risk of increasing NPAs and loss in unlisted investments
- Diversification into non-tourism book
- Supply of shares could dampen the upside in the short term
View and Recommendation
Despite having a strong capital adequacy ratio, TFCI was unable to grow its lending book due to its conservative nature, slowdown in capex in the tourism related companies, and being promoted by Government owned entities. The recent change in ownership pattern is likely to bring about a change in the board of directors and the management. The financial background of the new promoters coupled with new avenues for lending should result in faster growth in loan and diversification in the asset base. With sharp improvement in return ratios we believe re-rating of the stock is likely.
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We feel investors could buy the stock at the CMP and add on declines to Rs. 153-157 band (1.7x FY20E ABV and ~10.0xFY20E EPS) for sequential targets of Rs. 195.5 (2.15x FY20E ABV and 12.5xFY20E EPS) and Rs. 227 (2.5x FY20E ABV and 14.5xFY20E EPS) in 3-4 quarters. At CMP of Rs. 173 the stock is trading at 1.9x FY20E ABV and 11.1xFY20E EPS.