BofA ML rates IndiaBulls Housing Finance as ‘Buy’
Indiabulls Housing Finance (IHFL) reported Q317 net profit of R7.5 bn, y-o-y growth of 25% and 2% beat. Underlying growth remains strong, with AUM (loan) growth at 31%y-o-y and spreads rising by 7 bp. Disbursement growth was robust at 41% y-o-y vs 10% in Q2. In that regard, the share of home loans stood at 54% in total disbursements vs. average trend of 40-50% share at the end of Q3. Management maintains that loan repayments (collection) was unaffected by demonetisation. IHFL has reaffirmed its goal of 66% home loans in the mix by 2020 on changing liability profile. Asset quality is stable, with gross/net NPLs at 85/36 bp, respectively. IHFL’s ability to demonstrate consistent quality of book for the last ~6 years has led to credit rating upgrades along the way. This has allowed IHFL to alter its liability profile. The ECB limit of $450 bn has already been exhausted, and management plans to apply for fresh limits during the next fiscal. Over 60% of the funding mix comes from floating rate loans, which is expected to expand margins further given the current scenario. IHFL guides a book spread of 300-302 bp for FY17, capable of meeting the net profit guidance of 23-28% for FY17. IHFL, for the first time, has crossed balance sheet size of R1 trillion. The other visible change is leveraging technology to drive in growth. The eHome loan project will reach 100 cities by next 6 months, and is expected to constitute 12-15% of the incremental business. With rising market share in a low-risk model, we estimate net profit could grow at a 28% CAGR in FY16-19e, driven by loan (AUM) growth at a 29%+ CAGR. IHFL trades at 2.6/2.3x FY17/18E book, for reported RoEs of 27/30% in FY17/18E. Balance sheet comfort remains high, with strong capitalisation and liquidity. BofA Merrill Lynch in its report said, “We remain positive on IHFL’s ability to grow its core ‘mortgage’ book, gain market share and deliver above-average RoA/RoE. Improvements in financial/operating leverage should complement, boosting ROEs. Hence, we maintain our PO of R1,050, implying 3.2x FY18E book. We maintain our Buy rating, highlighting it as our ‘top pick’ in non-bank space.”
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