Indiabulls Housing Finance: CMP: INR949 TP: INR1,150 (+21%)
Indiabulls Housing Finance: CMP: INR949 TP: INR1,150 (+21%)
Indiabulls Housing Finance: CMP: INR949 TP: INR1,150 (+21%)
Research Analyst: Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415 | Piran Engineer (Piran.Engineer@MotilalOswal.com); +91 22 3980 4393
Nitin Aggarwal (Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540 | Shubhranshu Mishra (Shubhranshu.Mishra@MotilalOswal.com); +91 22 3982 5558
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Indiabulls Housing Finance
AUM growth robust at 29% AUM growth robust at 29% YoY; Management’s guidance of 20% YoY for FY19
YoY Disbursements were up 23% YoY to INR110b in the quarter. Disbursement mix:
Home loan – INR61.16b, LAP – INR18.96b, Corporate - INR30.22b
This resulted in AUM growing 29% YoY to INR1.29t. However, given the liquidity
tightening scenario, management has guided to 20% YoY AUM growth in FY19.
Given the sluggish start to the year coupled with expected slowdown due to
liquidity tightening, we expect 16% YoY AUM growth in FY19.
Share of home loans was increased 100bp QoQ to 61% of total loans.
Management reiterated guidance of 66% share of home loans by FY20.
Spreads largely stable at Reported spreads largely stable; focusing on portfolio sell-downs
3.24%; Targeting INR80b of Reported spreads remained largely unchanged at 3.24%, led by ~20bp increase
sell-downs in 2HFY19 in both yields and CoF on a QoQ basis.
Management continues to guide to spreads of 300-325bp on a sustainable basis.
IHFL sold down INR34.7b worth of loans during the quarter and plans to sell
down another INR80b in 2HFY19.
The company bought back INR18.34b of MF paper over the past few weeks. In
addition, INR5.8b of IHFL paper has traded in the past three weeks.
Gross stage 3 loans stable Asset quality stable
at 77bp Asset quality was largely stable with Stage 3 loans at 77bp and coverage ratio on
the same at 25%.
Credit costs of INR400m came in lower on a YoY basis (INR1.9b in 2QFY18) as
well as lower than estimate (INR750m). Note that the 2QFY18 credit cost
number is as per IGAAP.
Note that, in the prior quarter, management has guided for credit costs to
reduce from 70-80bp to 25bp under Ind-AS.
Valuation and view
IHFL seems adequately equipped to gain market share from PSU banks, given its
low cost structure. We believe IHFL will gain meaningfully from the
government’s impetus on affordable housing.
We believe the focus on mortgage and market share gains will drive AUM CAGR
of 17% over the next three years. As individual home loans have lower risk
weight than corporate loans, capital consumption will be lower with gradual
15 October 2018 2
Indiabulls Housing Finance
shift toward individual home loans. At the same time, increased sell-downs will
also help improve return ratios.
IHFL has consistently outperformed peers on key parameters. Average three-
year RoE at 26% is the best among the peer group. Dividend payout ratio is likely
to remain high at 40%+. The company offers superior return ratios with ~4%
dividend yield.
Post the Ind-AS transition, networth increased by ~20% due to MTM on Oak
North Bank stake and DTL reversal benefit. Additionally, credit costs are likely to
remain low as there is no scope for floating provisions.
However, given the slow start to the year in terms of AUM growth, we cut our
EPS estimates by 8-9% for FY19/20 and accordingly our TP by 6%. In addition,
any steps taken by the regulatory addressing ALM and other concerns could
have a bearing on our estimates/TP. Maintain Buy with a TP of INR1,150 (2.4x
Sep 2020E BV).
15 October 2018 3
Indiabulls Housing Finance
Guidance
AUM growth of 20% in FY19
INR8b of portfolio sell-down in 2HFY19
Balance sheet growth will be slower than loan book growth due to securitization
Others
Made proposal to NHB to switch CP for HFCs to short-term secured bonds
RERA has been de-risking real estate market especially in top-6 cities
Exhibit 3: Quarterly Snapshot
FY17 FY18 FY19 Variation (%)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q QoQ YoY
Profit and Loss (INR m)
Income from operations 23,720 25,098 25,859 29,314 30,165 31,557 33,492 36,897 38,903 39,804 2 26
Interest Expenses 14,109 16,279 16,329 17,391 18,408 19,113 19,531 20,930 23,351 25,564 9 34
Net Interest Income 9,611 8,819 9,530 11,923 11,757 12,444 13,960 15,967 15,551 14,240 (8) 14
Other Income 2,255 3,651 4,186 2,935 2,718 2,968 7,565 2,775 1,811 2,749 52 (7)
Total Income 11,866 12,470 13,716 14,858 14,475 15,412 21,525 18,742 17,362 16,989 (2) 10
Operating Expenses 1,856 1,808 1,878 2,050 2,006 2,462 2,662 2,195 2,687 2,723 1 11
Operating Profit 10,010 10,662 11,838 12,808 12,469 12,950 18,864 16,547 14,674 14,266 (3) 10
Provisions 1,260 1,450 1,780 3,110 1,850 1,870 3,270 4,120 650 400 (38) (79)
PBT 8,750 9,212 10,058 9,698 10,619 11,080 15,594 12,427 14,024 13,866 (1) 25
Taxes 2,401 2,352 2,555 1,325 2,571 2,557 3,939 2,182 3,538 3,516 (1) 38
PAT 6,349 6,861 7,502 8,373 8,049 8,523 11,655 10,245 10,487 10,349 (1) 21
Minority Interest -49 -18 13 32 46 91 23 59 60 92
PAT Post Minority Interest 6,301 6,843 7,515 8,405 8,095 8,614 11,677 10,304 10,547 10,442 (1) 21
Asset Quality
GNPA (INR m) 5,966 6,251 6,921 7,761 7,556 7,820 8,264 9,439 9,825 9,925 1 27
NNPA (INR m) 2,545 2,548 2,917 3,271 2,914 3,093 3,312 4,150 7,418 7,462 1 141
Gross NPA (%) 0.84 0.83 0.85 0.85 0.80 0.78 0.77 0.77 0.78 0.77
Net NPA (%) 0.36 0.34 0.36 0.36 0.31 0.31 0.31 0.34 0.59 0.58
Provisions on AUM (%) 0.48 0.49 0.49 0.49 0.49 0.47 0.46 0.43 0.19 0.19
Margins (%) - (calculated)
Yield on loans 12.8 12.9 12.6 13.0 12.7 12.3 13.0 13.1 13.0 13.1
Cost of funds 8.9 9.3 8.3 8.3 8.5 8.3 7.9 7.9 8.3 8.7
Spreads 4.0 3.6 4.3 4.7 4.2 4.1 5.1 5.2 4.7 4.5
NIMs 5.0 4.8 5.0 5.0 4.9 4.7 4.4 4.9 4.8 4.5
Ratios (%)
Cost to Income 15.6 14.5 13.7 13.8 13.9 16.0 12.4 11.7 15.5 16.0
Tax Rate 27.4 25.5 25.4 13.7 24.2 23.1 25.3 17.6 25.2 25.4
RoE (Calc.) 22.9 24.0 25.8 28.1 26.7 28.0 31.0 31.0 62.9 54.0
RoA (Calc.) 3.2 3.2 3.1 3.3 3.1 3.1 3.2 3.2 3.1 3.0
Business Details
Disbursements-Quarterly (INR b) 53 67 91 150 70 90 130 195 100 110 10 23
AUM (INR b) 710 753 814 913 945 1,003 1,073 1,226 1,260 1,289 2 29
Borrowings (INR b) 745 832 919 940 978 1,071 1,132 1,227 1,298 1,351 4 26
Total AUM Mix (%)
Mortgages 77 78 79 78 78 78 79 79 79 80
Corporate 23 22 21 22 22 22 21 21 21 20
Liability Mix (%)
Bank Loans 47 39 37 37 35 33 34 34 32 31
CP 0 0 0 0 0 0 0 0 0 0
NCD 40 49 50 51 52 54 53 53 53 54
ECB 2 2 3 3 3 3 3 2 4 4
Other Details
Dividend (INR/sh) 9 9 9 9 9 9 14 10 10 10
Source: MOSL, Company
15 October 2018 4
Indiabulls Housing Finance
Story in charts
Exhibit 4: Strong disb. growth led by home loans Exhibit 5: Continued robust AUM growth at +29% YoY
1,260
1,289
1,003
1,073
1,226
913
945
623
687
710
753
814
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: Company, MOSL Source: Company, MOSL
Exhibit 6: AUM mix gradually moving toward mortgages Exhibit 7: Stable liability mix
Corporate (%) Mortgages (%) Sell Down (%) ECB(%) NCD (%) Banks (%)
23 22 21 22 22 22 21 21 21 20 11 11 10 9 10 10 10 10 11 11
40 49 50 51 52 54 53 53 53 54
77 78 79 78 78 78 79 79 79 80
47 39 37 37 35 33 34 34 32 31
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Exhibit 8: Asset quality remains healthy Exhibit 9: PAT growth trend (%)
GNPA (%) NNPA (%) PAT (INR b) Growth (%)
55
0.8 0.8 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8
0.6 0.6
28 30
24 26 23 23 25 24 26
0.4 0.4 0.4 23 23 21
0.3 0.3 0.3 0.3 0.3
11.7
10.3
10.5
10.4
5.6
6.0
6.8
6.3
6.8
7.5
8.4
8.1
8.6
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: Company, MOSL Source: Company, MOSL; Note: 10% stake sale in Oak North Bank in
3QFY18
15 October 2018 5
Indiabulls Housing Finance
15 October 2018 6
Indiabulls Housing Finance
Balance Sheet
Y/E March 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Equity Share Capital 625 668 711 843 848 853 853 853 853
Reserves & Surplus 51,061 56,387 65,606 106,097 124,700 149,081 168,394 191,131 217,551
Net Worth 51,686 57,055 66,317 106,939 125,548 149,935 169,247 191,984 218,404
Borrowings 312,858 355,395 474,874 610,853 853,011 1,102,600 1,236,309 1,455,398 1,699,613
Change (%) 23.7 13.6 33.6 28.6 39.6 29.3 12.1 17.7 16.8
Deferred Tax Liability -1,641 -1,847 -26 760 1,103 1,230 1,230 1,230 1,230
Total Liabilities 364,351 410,622 541,186 718,552 979,662 1,253,764 1,406,785 1,648,612 1,919,247
Cash and bank balance 48,882 44,190 34,903 29,017 56,825 47,478 69,502 80,565 94,159
Investments 23,079 29,470 61,638 106,928 136,166 148,709 171,015 196,668 226,168
Change (%) 28.4 27.7 109.2 73.5 27.3 9.2 15.0 15.0 15.0
Loans 307,824 354,446 460,396 608,643 826,139 1,105,600 1,224,068 1,440,988 1,682,785
Change (%) 20.9 15.1 29.9 32.2 35.7 33.8 10.7 17.7 16.8
Net Current Assets -15,889 -18,639 -16,978 -27,393 -41,050 -49,712 -59,654 -71,585 -85,902
Net Fixed Assets 456 469 541 686 903 1,110 1,275 1,398 1,459
Total Assets 364,351 410,622 541,186 718,552 979,662 1,253,764 1,406,785 1,648,612 1,919,247
Note: FY18 PAT includes one-off stake sale amounting to INR2.4b
15 October 2018 7
Indiabulls Housing Finance
Asset quality
GNPA (%) 0.79 0.83 0.85 0.84 0.85 0.77 0.95 0.99 1.01
NNPA (%) 0.33 0.36 0.36 0.35 0.36 0.34 0.40 0.40 0.41
Valuations 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Book Value (INR) 165.4 170.8 186.5 253.8 296.2 351.5 396.8 450.1 512.0
BV Growth (%) 5.1 3.3 9.2 36.1 16.7 18.7 12.9 13.4 13.8
Price-BV (x) 2.7 2.4 2.1 1.9
EPS (INR) 40.3 46.8 53.5 55.7 68.6 90.2 98.4 115.9 134.6
EPS Growth (%) 25.8 16.3 14.2 4.1 23.2 31.5 9.1 17.7 16.2
Price-Earnings (x) 10.5 9.6 8.2 7.0
DPS (INR) 20.0 29.0 35 45.0 36.0 42.0 44.3 52.1 60.6
Dividend Payout (%) 49.6 61.7 47.9 76.0 39.3 46.6 45.0 45.0 45.0
Dividend Yield (%) 4.4 4.7 5.5 6.4
E: MOSL Estimates
15 October 2018 8
Indiabulls Housing Finance
Corporate profile
Exhibit 1: Sensex rebased
Company description
Indiabulls Housing Finance (IHFL) is the third
largest housing finance company in India with
AUM of over INR1.2t as of FY18. It was established
as a wholly-owned subsidiary of Indiabulls
Financial Services (IBFSL). In early 2013, keeping
with IHFL’s long-term commitment to the housing
finance business, the company was reversed-
merged into its housing finance subsidiary IHFL.
IHFL offers home loans to target client base of Source: MOSL/Bloomberg
Source: Capitaline
*Independent
Source: Capitaline
15 October 2018 9
Indiabulls Housing Finance
NOTES
15 October 2018 10
Indiabulls Housing Finance
15 October 2018 11
Indiabulls Housing Finance
The associates of MOSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOSL also earns DP income from clients
which are not considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the
research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may
not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of
MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The
information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation
of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is
prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for
the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by
virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed,
in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose
and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report
constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities
discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives,
financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document
should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including
the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be
suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial
risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions
contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as
endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and
alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect
or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and
independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other
person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of
or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL
to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of
investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees,
agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in
connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all
responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or
any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and
delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com.
Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer:
Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-38281085.
Registration details: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412.
AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual
Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is
a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.
15 October 2018 12