Analysts' call: 'Abstain' from Tourism Finance Corporation of India buyback

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Analysts have recommended investors to stay away from the ongoing open offer of Tourism Finance Corporation of India (TFCI) on expectations of a rally in its stock after completion of the offer period.

Trading currently at a 17 per cent discount to the open offer price of Rs 157.20 apiece on the National Stock Exchange (NSE), the stock had declined sharply over the past few weeks, closing at Rs 130.25 on Friday.

“We expect the stock price to witness a rally once the open offer gets over and the company gets expertise and advice from the new management and focuses towards value added services. The company has been paying out steady dividends of 20 per cent for the last eight years,” said Dinkar Shanbaug, head of institutional equities Lotus Global Equities.

Experts see TFCI as a value stock for long-term investors and advise them to abstain from the open offer on account of various fundamental strengths of the company, which is likely to get reinforced once the new management takes charge.

Shareholders of TFCI have been invited to participate in the open offer by three existing marquee shareholders - Redkite Capital Pvt Ltd, along with SSG Capital’s India Opportunities III PTE and Koppara Sajeeve Thomas. The open offer is at Rs 157.20 plus interest payment of Rs 4.18 to acquire an additional 26 per cent stake in TFCI. The offer opened on February 5 and will close on February 18.

“TFCI can be a value stock for long-term players for reasons that include organisational transformation on account of new promoters resulting in re-rating of the stock, pick up in lending activity, diversification of asset book and likely asset quality improvement on account of upgradation,” said Atul Karwa, Senior Analyst, HDFC Securities in a report earlier.

TFCI is a financial institution contributing significantly to creation of tourism infrastructure throughout the country. The company’s strengths primarily lie in its positive asset liability management (ALM) and robust capital adequacy ratio (CAR) of 40 per cent compared to the threshold of 15 per cent. As of date, non-performing assets (NPA) which stand at 2.9 per cent are expected to be brought down to below 1 per cent by FY 2019-20.

TFCI’s team of 28 personnel till date has cumulatively sanctioned a sum of Rs 10,887 crore with majority exposure to the tourism sector. In the midst of the turmoil in the entire non-banking finance company (NBFC) sector, TFCI seems to be a rising star for investors looking for value in their investment. The stock at its current rate is available at 1.6 times its book value, which is a huge discount to the sector (NBFC)'s price-to-book value. Compared with other NBFC players, TFCI doesn’t have any short-term borrowing, exposure towards loan against share and the real-estate market.

Its niche offering is expected to cushion the stock and market players expect a robust return in the coming quarters.

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