Pick of the Week

RETAIL RESEARCH

6 Sep 2016

Tourism Finance Corporation Ltd

Industry

CMP

Recommendation

Add on Dips to band

Sequential Targets

Time Horizon

BFSI

Rs. 43.65

Buy at CMP* and add on dips

Rs. 39-40

Rs. 50-54.2

2-3 quarters
*= buy upto 44.50

HDFC Scrip Code

TOUFINEQNR

BSE Code

526650

NSE Code

TFCILTD

Bloomberg

TFCI IN

CMP as on 03 Sep 16

43.65

Eq. Capital (Rs crs)

80.72

Face Value (Rs)

10.00

Equity Sh. Outs (Cr)

8.07

Market Cap (Rs crs)

352.33

Book Value (Rs)

Avg. 52 Week Vol

63.69
69.20

52 Week Low

34.75

Shareholding Pattern-% (Jun-2016)

Promoters

54.11

Institutions

5.37

Total
Research Analyst: Atul Karwa

atul.karwa@hdfcsec.com

Investment Rationale
Specialized lender catering to the tourism sector
Government initiatives to boost inbound tourism in India
Increasing domestic travel to create demand for more hotels
Strong capital adequacy
Attractive valuations even after adjusting NPAs (which are likely to reduce)

424000

52 Week High

Non Institutions

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 companys 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. 8,000 cr to 787 projects as at the end of FY16.

40.51
100.00

Concerns

Sluggish inbound or domestic travel

Declining room rentals delaying projects
Risk of increasing NPAs and loss in unlisted investments
Competition from banks and other lenders
Unloading of shares by one of the promoters - IFCI could depress share price in the near term.

Financial Summary
Rs in Cr
NII
PPP
PAT
EPS (Rs)
P/E (x)
P/ABV (x)
RoAA (%)

Q1FY17
27.6
26.7
20.2
2.5

Q1FY16
21.2
21.0
16.5
2.0

YoY (%)
30.3
27.5
22.5
22.5

Q4FY16
11.5
8.9
3.3
0.4

QoQ (%)
141.3
201.2
520.6
520.6

FY15
86.6
85.9
60.2
7.5
5.9
0.8
4.2

FY16
85.0
77.7
53.6
6.6
6.6
0.9
3.5

FY17E
94.7
87.7
58.6
7.3
6.0
0.7
3.5

FY18E
108.6
100.8
67.1
8.3
5.2
0.6
3.6

(Source: Company, HDFC sec)

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View and Recommendation
TFCI, being a specialist financing entity could be under focus in times of cyclical upturn of their underlying assets. It has a
very lean cost structure and comfortable liquidity profile. The management is targeting sanction and disbursements of Rs
1000 cr and Rs 600 cr in FY17. It had a healthy capitalization level of 37.8% and can double its advances without any equity
dilution. We expect return ratios to improve going forward as the company leverages its strong equity base to increase
advances book. TFCI is trading at an attractive valuation of 5.2xFY18E EPS and 0.6xFY18E ABV and dividend yield of 4%. The
CMP includes 8% final dividend for FY16, the book closure date for which is Sept 19, 2016 and the ex-date is Sept 15, 2016.
We feel investors could buy the stock at the CMP and add on declines to Rs. 39-40 band (4.75x FY18E EPS, 0.57x FY18E ABV)
for sequential targets of Rs. 50 (6x FY18E EPS, 0.73x FY18E ABV) and Rs. 54.2 (6.5x FY18E EPS, 0.79x FY18E ABV) in 2-3
quarters.
Q1FY17 Result Review
NII of the company increased by 30.3% yoy to Rs 27.6 cr as interest income went up 14.8% to Rs 50.1 cr while interest
expenses remained flat. Gross NPAs declined from Rs 159 cr at the end of Q4FY16 to Rs 129 cr. NIMs stood at 3.65% for the
quarter. PAT increased 22.5% yoy to Rs 20.2 cr as the company provided higher tax compared to Q1FY16.
Particulars
Interest Income
Interest Expenses
Net Interest Income
Non-interest income
Total Income
Operating Expenses
Provisions
PBT
Tax
Reported PAT
EPS

Q1FY17
50.1
22.5
27.6
4.1
31.8
5.1
0.0
26.7
6.6
20.2
2.5

Q1FY16
43.7
22.5
21.2
3.6
24.8
3.9
0.0
21.0
4.5
16.5
2.0

YoY (%)
14.8
0.2
30.3
13.7
27.9
30.2
NA
27.5
45.6
22.5
22.5

Q4FY16
33.9
22.5
11.5
2.9
14.4
5.5
-0.4
9.3
6.0
3.3
0.4

QoQ (%)
47.9
0.2
141.3
41.8
121.1
-8.2
NA
188.9
9.2
520.6
520.6

(Source: Company, HDFC Sec)

FY16 Result Review

Depressed market conditions resulted in net Interest income declining 1.8% yoy in FY16 to Rs 85 cr due to reversal of
interest on some of the large accounts which slipped from standard to sub-standard category. Profit of the company decline
11% to Rs 53.6 cr. Profit was impacted on account of interest reversal of six downgraded accounts (Rs. 12.2 cr), lower profit
from sale of investment (Rs. 4.6 cr lower than previous year), loss of interest on prepayment of loans aggregating Rs.160.4
cr and reduction in base rate by 50 basis from 12.75% to 12.25% with a view to retain the existing clients and to attract new
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business to ensure balance sheet growth. Further, the company has spent a sum of Rs.1.59 cr in meeting its Corporate
Social Responsibility for the first time. NIMs declined from 3.36% in FY15 to 2.78% in FY16. Vacant post of MD resulted for
~4 months resulted in advances growing by only 2% for FY16. EPS stood at Rs. 6.6 for FY16 as compared to Rs. 7.5 in FY15.

Company Overview
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 companys 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. 8,000 cr to 787 projects as at the end of FY16.
TFCI, as a specialised financing institution, has contributed significantly in terms of creation of tourism infrastructure
throughout the country and thereby generating direct employment opportunities. The assistance sanctioned so far has
helped in creating over 46,000 rooms in approved category of hotels which represents approximately 1/3rd of the total
rooms capacity in the country. The assistance sanctioned by TFCI has helped in catalysing investment to the tune of Rs.
26,200 cr in tourism sector till 30th September, 2015.
The responsibility for setting-up of TFCI was initially entrusted to IFCI Ltd. in participation with other All India Financial
Institutions and Banks. Accordingly, TFCI was set-up in 1989 with initial equity of Rs. 50 cr which now stands increased to
Rs. 80.7 cr. TFCI has been operating profitably since its inception and as on FY16, its free reserves aggregating ~Rs. 425 cr
after payment of dividend regularly. As on date, more than 50% of its equity is jointly held by IFCI/LIC/State Bank of
India/Bank of India and other banks and financial institutions, the majority being with IFCI who holds 37.70% of equity. TFCI
raises long term resources from the market by way of Issue of Bonds besides utilising internal accruals.
Financial Products
TFCI provides all forms of financial assistance for new, expansion, diversification, renovation/modernization projects in
tourism sector services sector and related activities, facilities and services. Over the last couple of years it has also
diversified into providing other corporate and infrastructure loans (excluding real estate).
Types of projects funded by the company
Tourism Project Financing
Hotels, Resorts and Serviced Apartments.
Restaurant Chains
Theme / Amusement Parks
Multiplexes and Entertainment Centers
RETAIL RESEARCH

Tourism Infrastructure Sector

Non-conventional power projects, Power distribution
networks like wind turbine and solar power projects.
Roads, Airports, Ports, Rail Infra related to tourism
Special economic zones, Industrial estates, Warehouses
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Education and Sports

Rope-ways / Safari Parks
Convention Halls
Travel and Tour Operating Agencies

Media, Entertainment & telecom

(Source: Company, HDFC Sec)

Types of financial assistance products

Rupee Loan
Corporate Loan
Bridge Loan

Subscription to Equity
Takeover Funding
Equipment financing
(Source: Company, HDFC sec)

Advisory services
Since its inception, TFCI provides high-quality research and Consultancy services to the tourism industry in general and to
the investors in tourism industry in particular. In line with this, TFCI has been providing Consultancy services to different
central and state agencies by undertaking broad-based assignments to cover macro & micro level tourism-related
studies/exercises to facilitate identification, conceptualization, promotion/implementation of specific tourism-related
projects & for taking policy level decisions with respect to investment and infrastructure augmentation etc.

Project related services

Site evaluation studies
Market-potential assessment for tourism projects
Techno- economic feasibility studies
Loan / Equity syndication services
Financial restructuring of project proposals, review
and appraisal
Project implementation and monitoring services
Pre-opening technical and facility planning service

Institutional Services for Central/State Govt.

Tourism-potential studies
Preparation of tourism-development Master Plans for
state/ travel circuit / destination.
Tourist profiles and image-rating studies.
Tourist-flow surveys
Carrying out accommodation and other infrastructure
assessment, studies
(Source: Company, HDFC Sec)

Investment Rationale
Specialized lender catering to the tourism sector
TFCI is a specialised institution catering largely to the hospitality sector. Around 80% of the advances are to hospitality
sector. Within hospitality segment, major focus is towards 3star/ Budget category hotels. Rest ~20% exposure is to the
infrastructure and corporate loan segment. The company has also started focusing on consulting assignment which will also
help it in generating leads apart from getting fee based income.

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Category wise distribution of portfolio

(Source: Company, HDFC sec)

Government initiatives to boost inbound tourism in India

There is a great deal of scope to expand tourism across India, and as the country improves air travel connections and
relaxes visa restrictions, tourist arrivals are likely to witness an incremental growth. The Government of Indias
announcement to extend its e-Tourist Visa (eTV, previously known as Tourist Visa on Arrival or TVoA) facility to citizens of
180 countries along with the initiation of electronic visa authorization facility across nine international airports is
anticipated to further boost foreign travel to the country as inbound travel to India from short-haul destinations
becomes more convenient.
Growth of Foreign Tourist Arrival in India

(Source: Ministry of Tourism, HDFC sec)

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Increasing domestic travel to create demand for more hotels
Domestic demand for hotels in India has historically been higher than demand from foreigners. In fact, as per the WTTC,
domestic travel spending in the country generated 81.4% of the total direct Travel and Tourism GDP in 2014. Rising
spending power coupled with the proliferation of low-cost carriers has enabled increased domestic travel. In July 2016, air
passenger traffic in India grew ~26% YoY. The depreciation of the rupee against the US dollar has also made international
travel less viable for domestic tourists, who are now substituting foreign vacations with domestic ones. Going forward,
domestic tourism is likely to witness strong growth and, according to HVS, will be the real driving force for this industry over
the next decade or so. This segment will be supported by the growing wealth base of India's population and increase in
hotel room capacity in the long term.
Sustained growth in domestic tourism

(Source: Company, HDFC sec)

Presently, India has about 1,70,000 hotel rooms in classified/approved categories and another 60,000 hotel rooms are
expected to be added to the inventory in the next 3-5 years. The hotels are recording average occupancy of around 61%. In
the long term, with the economy growing at an average rate of around 7.5% annually, it is expected that the demand for
hotel rooms would improve further. Then hotel industry revenues are likely to improve by 9-10% in 2016-17, mainly aided
by improved occupancies.

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Strong capital adequacy
The Company is well placed with 37.8% Capital adequacy ratio (CAR) and ~30% tier I ratio. The company will not be
requiring capital for another 34 years and can double its balance sheet, on the same capital base. Strong CAR also provides
support against risks of default by any of the large client.
Capital Adequacy ratio (%)

(Source: Company, HDFC sec)

Attractive valuations even after adjusting NPAs

TFCI is trading at an attractive valuation of 5.2xFY18(E) EPS and 0.6xFY18E ABV and dividend yield of 4%. The CMP includes
8% final dividend for FY16, the book closure date for which is Sept 19, 2016 and the ex-date is Sept 15, 2016 It paid a
dividend of Rs 1.80 per share in FY16 which gives a dividend yield in excess of 4%. With the increase in earnings there might
be a scope of increase in dividend in the future.
Strong risk management practices; leading to lower asset quality risks
TFCI has a very strong risk management practices. It provides loans to companies only where it has a first charge on
movable and immovable fixed assets. It also takes personal guarantees of the promoters and corporate guarantee of the
group concerns, if necessary. Where project assets cannot be mortgaged/hypothecated, charge on the cash flows through
escrow mechanism and annuity system is taken after careful due diligence. For State/Central entities it ensures the project
is backed and guaranteed by the respective state or central government.
The companys expertise in hotel financing over the past two decades helped it to be resilient during an economic
downturn. It has a very stringent due diligence process with separate teams for monitoring, appraisal and recovery. The
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company currently follows a 120-day NPA recognition norm, but the management also clarified that there will be no
addition to NPAs once it moves towards a 90-day NPA recognition as of date.
TFCI did not have any net NPAs till FY14. However, the slowdown in the industry over the past three years has resulted in
short-term cash flow issues with some of the clients. Consequently, NPA levels spiked up in FY16 as TFCI following the
norms, had to recognize them as NPA. During FY16, TFCI recovered an amount of Rs. 21.47 cr from NPA accounts. However,
despite vigorous follow up, 6 account with an aggregate outstanding of Rs. 131.61 cr have slipped from standard to
substandard category and recognized as NPA as on March 31, 2016. As all these accounts are fully secured, TFCI is confident
of realising the entire over dues alongwith further interest/principal during the current year. It has made adequate
provisions in the books of accounts. The Net NPAs of the company were Rs. 120.89 cr as on March 31, 2016. It involves
some of the well-known hotel chains and we believe the levels would come down to normal by the end of FY17.
GNPA and NNPA trend (%)

(Source: Company, HDFC sec)

Advances to grow at 14-15% CAGR over FY16-18

Unlike banks which lend typically for 8-10 years, TFCI loan tenure is for 12-15 years. This gives and edge over peers given
the long gestation period for a Greenfield project and pay-back period thereafter. With the growth revival and opportunity
for re-financing, TFCI can witness a surge in loan buyouts from banks. Advance book grew at a moderate pace of 10% CAGR
over FY1116, due to cautious stance adopted by management amid weaker economic environment. The vacant position of
MD of the company for 4 months of FY16 hampered growth in advances which was just 2% in FY16. With the place filled by
Mr. Arora, we expect advances growth to improve to 14-15% CAGR over FY16-18. For FY17 the company has set a target of
Rs 1000 cr of sanction and Rs 600 cr of disbursements. In the first 4 months it has already sanctioned Rs 470 cr of loans and
disbursed Rs 170 cr.
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Advances growth trend (Rs Cr)

Sanctions and Disbursement trend (Rs Cr)

(Source: Company, HDFC sec)

Healthy margins, reducing costs to result in higher RoE

TFCI enjoys a spread of ~3% with its average cost of borrowing at ~9.5% and average lending rate of ~12.5%. However its
calculated net interest margins are in the range of 6.5-7% on account of lower leverage and a higher proportion of networth
in its books. The management expects to maintain a minimum spread of 3% going forward, but calculated NIMs is expected
to fall as it is looking to reduce its costs through issue of short term CPs. The company also has limits sanctioned with
various banks at base rates which it can utilize if necessary. Increase in leverage will bring down the borrowing cost for the
company, raise the NIMs and improve the return ratios further.
Return ratios set to increase (%)

(Source: Company, HDFC sec)

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Concerns
Sluggish inbound or domestic travel
Growth of TFCI is dependent on increasing tourist arrivals and domestic tourism. Slowdown in tourism activities could
result in lower growth for the company.
Declining room rentals delaying projects
Persistent decline in room rentals due to oversupply in major metro markets have led to the new projects have either been
shelved or deferred for the time being
Risk of increasing NPAs and loss in unlisted investments
NPAs have spiked up in FY16. Although the assets are fully secured and the management has indicated that these are due
to temporary cash flow issues, failure to bring down these levels would result in higher provisioning requirements
impacting profitability. TFCI also subscribes to equity in some of the projects which could result in markdowns/ losses.
Competition from banks and other lenders
TFCI offers a higher tenure loans as compared to banks. If the banks also start offering higher tenure loans, then TFCI might
lose its competitive advantage.
Unloading of shares by one of the promoters - IFCI could depress share price in the near term.
IFCI has sold 2.1% stake in TFCI through open market in June-16. Share prices could remain depressed in the near term if
IFCI decides to sell additional shares.
Return ratios low due to low leverage
Return ratios of TFCI have been on the lower side as leverage is low. Although the management is looking to improve
leverage by increasing borrowing it might take some time for the return ratios to improve.

View and Recommendation

TFCI, being a specialist financing entity could be under focus in times of cyclical upturn of their underlying assets. It has a
very lean cost structure and comfortable liquidity profile. The management is targeting sanction and disbursements of Rs
1000 cr and Rs 600 cr in FY17. It had a healthy capitalization level of 37.8% and can double its advances without any equity
dilution. We expect return ratios to improve going forward as the company leverages its strong equity base to increase
advances book. TFCI is trading at an attractive valuation of 5.2xFY18E EPS and 0.6xFY18E ABV and dividend yield of 4%. The
CMP includes 8% final dividend for FY16, the book closure date for which is Sept 19, 2016 and the ex-date is Sept 15, 2016.
We feel investors could buy the stock at the CMP and add on declines to Rs. 39-40 band (4.75x FY18E EPS, 0.57x FY18E ABV)
for sequential targets of Rs. 50 (6x FY18E EPS, 0.73x FY18E ABV) and Rs. 54.2 (6.5x FY18E EPS, 0.79x FY18E ABV) in 2-3
quarters.
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Financial Statements
Income Statement
(Rs Cr)
Interest Income
Interest Expenses
Net Interest Income
Non-interest income
Operating Income
Operating Expenses
Pre Provisioning Profit
Provision & Contingencies
Profit Before Tax
Tax
PAT

FY14
174.8
80.8
94.0
12.5
106.5
17.8
88.7
4.6
84.1
25.6
58.5

FY15
171.7
85.2
86.6
16.3
102.9
17.0
85.9
4.0
81.9
21.7
60.2

FY16
175.1
90.1
85.0
10.5
95.5
17.8
77.7
2.0
75.7
22.1
53.6

FY17E
190.9
96.2
94.7
13.8
108.5
20.8
87.7
4.6
83.2
24.5
58.6

FY18E
214.9
106.3
108.6
15.8
124.4
23.7
100.8
5.5
95.2
28.1
67.1

(Source: Company, HDFC Sec)

Balance Sheet
(Rs Cr)
EQUITY AND LIABILITIES
Share Capital
Reserves & Surplus
Shareholder funds
Borrowings
Other Liab & Prov.
TOTAL

FY14

FY15

FY16

FY17E

FY18E

80.7
355.8
436.5
861.5
63.8
1361.8

80.7
398.4
479.1
956.5
65.3
1500.9

80.7
433.3
514.1
996.5
79.7
1590.2

80.7
473.6
554.3
1117.0
82.1
1753.3

80.7
521.3
602.0
1272.2
92.0
1966.2

ASSETS
Fixed Assets
Investments
Cash & Bank Balance
Advances
Other Assets
TOTAL ASSETS

30.3
138.4
8.2
1169.5
15.5
1361.8

29.5
190.3
2.1
1265.0
14.0
1500.9

29.1
254.5
5.3
1292.6
8.7
1590.2

28.9
233.2
7.4
1473.6
10.3
1753.3

28.7
231.7
8.4
1687.2
10.1
1966.2

(Source: Company, HDFC Sec)

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Financial Ratios
Particulars
Return Ratios
Calc. Yield on advances
Calc. Cost of borrowing
NIM
RoAE
RoAA
Asset Quality Ratios
GNPA
NNPA
PCR
Growth Ratios
Advances
Borrowings
NII
PPP
PAT
Valuation Ratios
EPS
P/E
BVPS
P/B
Adj. BVPS
P/ABV
Dividend per share
Dividend Yield (%)
Other Ratios
Cost-Income

FY14

FY15

FY16

FY17E

FY18E

15.0%
9.7%
8.1%
13.7%
4.2%

14.1%
9.4%
7.1%
13.1%
4.2%

13.7%
9.2%
6.6%
10.8%
3.5%

13.8%
9.1%
6.8%
11.0%
3.5%

13.6%
8.9%
6.9%
11.6%
3.6%

2.0%
0.0%
100.0%

3.3%
1.5%
61.1%

12.3%
9.8%
20.0%

4.7%
2.2%
52.7%

5.3%
2.8%
47.1%

0.5%
6.5%
10.2%
13.0%
5.3%

8.2%
11.0%
-7.9%
-3.2%
2.9%

2.2%
4.2%
-1.8%
-9.5%
-10.9%

14.0%
12.1%
11.4%
12.9%
9.3%

14.5%
13.9%
14.7%
14.9%
14.5%

7.2
6.0
54.1
0.8
54.1
0.8
1.2
2.8

7.5
5.9
59.4
0.7
57.0
0.7
1.8
4.1

6.6
6.6
63.7
0.7
47.9
0.7
1.8
4.1

7.3
6.0
68.7
0.6
64.6
0.6
1.9
4.4

8.3
5.2
74.6
0.6
68.8
0.6
2.0
4.6

16.7

16.5

18.7

19.2

19.0

(Source: Company, HDFC Sec)

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1 year price movement comparison with BSE Bankex

1 year forward P/ABV

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Fundamental Research Analyst: Atul Karwa, atul.karwa@hdfcsec.com

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066
Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com.
"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."
Disclosure:
I Atul Karwa, MMS authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no
part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of
1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any
material conflict of interest.
Any holding in stock No
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