The Hindu Business Line : IL&FS Investment Managers: Buy

INVESTMENTS may be considered in the stock of IL&FS Investment Managers at the prevailing price of Rs 125. The stock is now trading at a price-to-earnings (PE) multiple of 33 times its earnings for the 12-month period ended September 2005. IL&FS Investment Managers is a private-equity fund management firm with considerable experience.

This is a reversal of the `sell' recommendation given in July 2005 at Rs 97. The recommendation to exit then was based on the stiff valuation commanded by the stock relative to earnings growth in the earlier years. The stock then was trading at a PE of 33 while earnings growth over the past three years had been about 30 per cent. Over a five-year period, earnings growth had been even lower. Profits in the year-ended March 2005 also rose only 9 per cent.

Since October, however, assets under management have doubled to about Rs 2,000 crore now. Future increase in assets under management is unpredictable. They are also lumpy and do not accrue steadily. Still, the doubling of funds provides a foundation to boost earnings growth. That IL&FS Investment Managers pays a substantial proportion of its earnings as dividend is another positive factor. So, earnings growth would reach investors in the form of dividends sooner.

The stock has reacted to the positive news and has gained 20 per cent over the past couple of weeks. There is still scope for gains. With a market capitalisation of Rs 193 crore, the stock's valuation is not expensive, given the equity assets of nearly Rs 2,000 crore. Buy with a one- to two-year perspective, as such a time frame may be needed for the increase in assets under management to get reflected in earnings growth.

Suresh Krishnamurthy

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