Company has made a wrong judgement in investing in long term project(property development project in Homagama-a JV with Aspic Group) with its assets. (36% of the balance sheet capital invested in Housing project with JV).Investment is Rs 1.5Bn($ 12.0Mn).
Basically CIFL has deposits for short and medium term.(deposits as 31/12/12 Rs 2.9Bn)Apart from above investment, balance they have advances in leases,HP and loans. Hence a deposit maturity mismatch against cash flow caused because JV
However it obvious that property developments is high return investment but medium to long term it generates cash. Therefore delay in cash flow would cause inability to repay depositors funds. However as per 31/12/12 following is disclosed;
Total outstanding in Housing project = Rs 1.5Bn
Interest receivable in Housing project = Rs 373Mn
CIFL loss for 9 months = Rs 147.8mn
Net Asset Value = Rs 6.67
Therefore above justify why company is in this state.
Company is not in a situation to go for Right Issue with current share price to generate capital. With infusion of $ 12.0Mn by R Meloney into CIFL the longer term investment in Housing project ($ 12.0Mn) will be financed. Therefore company will have its depositors funds to continue its operations.
As a well established business in the finance industry the firm will rebound in time to come with overall economic growth attached with low lending rates prevailing. Just like Seylan bank. There are many finance company's worse than CIFL if we closely look in BS.
CIFL have higher possibilities reaching more than Rs 6/- within next 12 months. So advice is not to look in to day trading or very short term period. CIFL have valuable assets and which generates cash. We have to be patient for a minimum of 1 year to have a guaranteed return of more than 250%.
Senior Equity Analytic