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Sunday, Jul 10, 2005

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IL&FS Investment Managers: Sell

INVESTORS in the stock of IL&FS Investment Managers can consider selling their holdings. The stock has run up sharply in the wake of the initial public offering of a group company, IL&FS Investsmart. The stock has risen by nearly 50 per cent since end-March. This company, however, does not hold any stake in this venture.

The valuation of the stock is also demanding. The stock is trading at a price to earnings multiple of nearly 32 times its earnings per share for FY 2005. This is high considering that the company's profits rose by only 9 per cent in the year ended March 2005. Although the dividend yield is attractive at 3 per cent, it is mainly because of the high payout ratio. The company paid out almost the entire profits earned in FY 2005.

IL&FS Investment Managers is a fund manager for institutional investors. It is a small company with a market capitalisation of nearly Rs 150 crore. The company has done well in the past. The size of funds it manages, a proportion of which it receives as fees, has grown over the years. IL&FS does hope to set up new funds in the forthcoming year, as well as reduce costs to boost profits. Given the past record, IL&FS may well succeed in its efforts although competition is intense in this industry. However, the valuation of the stock almost fully prices in such developments.

Suresh Krishnamurthy

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