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

Our recommendation is based on the swelling assets under management, which could scale up the earnings growth substantially in the current year, and the robust outlook for private equity investments in India. The immense growth prospects justify the steep valuations.

Investors with a medium-term perspective can consider entering at this level, though it will perhaps be more suitable for those with a slightly higher risk profile.

Business

ILFS Managers is a private equity firm that handles funds on behalf of both domestic and foreign investors.

The company earns much of its income as fees for managing assets. It also gets a small share of the profits on the sale of investments made.

ILFS Managers' income is directly co-related to the assets under management. Most of its funds are close-ended and the fee-income is fixed through the tenure of the fund.

The growth in its income will depend on the launch of funds by identifying new investment themes and investing at the appropriate value.

Investment rationale

ILFS Managers' total assets under management have more than trebled, from approximately Rs 1,300 crore to Rs 4,000 crore in the last one year. This means the company would earn much higher income in the financial year 2007.

Going by the assets under management — which have grown at a healthy compounded rate of 37 per cent over the last 10 years — the company figures among the top three Indian private equity firms.

ILFS Managers have caught on to investment themes at the right time and have a good track record of exits.

They raised sector-specific funds such as an infrastructure fund in 2000, an auto component fund in 1998 and now a realty fund, when the sector appears to be an investment hotspot.

The company has just concluded raising a $525-million (approximately Rs 2,415 crore) realty fund that will invest in real estate.

This is the largest fund raised by the company and accounts for nearly 58 per cent of the total funds under management.

We believe the market in India is ripe for private equity and the business has immense potential for growth.

With the economy slated to grow at an average of 7-8 per cent over the next two-three years, there will be immense scope for private equity investments both in listed equity and unlisted companies.

With a number of funds entering India, there is also the possibility of excess funds chasing opportunities, which could have an impact on the valuations and return on investment.

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