IL&FS Investment Managers

Investors with a high-risk appetite can consider buying the IIML stock.

With business entirely focussed on alternative asset management (private equity or PE), this only listed PE firm offers investors an opportunity to participate in the improving scope for PE investments in India.



A significant growth in its assets under management (AUM), stable revenue profile, and experience across market cycles strengthen the case for investment. At Rs 50, the stock's market capitalisation is 7 per cent of its AUM and discounts its trailing four-quarter consolidated earnings by 14 times. This seems reasonable considering that the company has earmarked plans to exit some of its present investments and raise new funds this year. Any increase in AUM will directly flow through to the company's top line as much of its income is fees pegged to assets managed. It also gets a small share of the profits that the funds make.

Three verticals

IIML currently specialises across three verticals — growth (investing in relatively mature companies that need capital for expansion), infrastructure, and real estate — and manages seven funds on a consolidated basis. It has so far made over 100 investments and managed over 50 exits or liquidity events, delivering a gross internal rate of return of over 25 per cent (in dollar terms). Revival in the initial public offering market, likely hike in the threshold limit for open offer and increase in corporate spending are positives in terms of higher deal flows and increased exit events.

Over the last three years, AUM has grown at a compounded rate of about 46 per cent to $3.2 billion (about Rs 14,900 crore) now. No surprise, then, that it has managed a compounded topline growth of over 45 per cent in the same period. Profit growth came higher at 60 per cent (compounded).

The company recently announced the merger of Saffron Asset Advisors, a Mumbai-based PE firm with its subsidiary, ILFS Investment Advisors. Saffron has two India-focussed realty funds with $400 million under its aegis. The merger, besides adding to the company's AUM, complements ILFS Managers in its skills in retail and residential segment of the real estate sector.

New funds launch

The company also plans to launch two new funds over the next two quarters — a growth PE fund (about $300-400 million in size) and a real estate yield product for international markets.

IIML is also eyeing the West Asian market in this regard. A good track record on returns and timely exits provide confidence on the company's ability to raise and manage new funds. In this regard, a high operating margin (about 62 per cent in FY10) also gives sufficient cushion to take on competition. IIML is also looking to buy out AXIS PE; the bids are under deliberation.

via BL