Indiabulls Housing Finance’s (IHFL) PAT grew 26% y-o-y and 9% q-o-q to Rs 6.04 billion (in line with estimate of Rs 5.9 billion). Strong AUM growth of 29.5% y-o-y, stable asset quality and book spreads of 320bp were the key highlights of the quarter.
Disbursements growth (21% y-o-y) and lower repayments (5.9% y-o-y) drove AUM up 29.5% y-o-y to Rs 622 billion. However, the mix will gradually change in favor of housing loans will increase from the existing 51% to 60% over the next two years; LAP and LRD would be 20% each.
Apart from CRISIL, ICRA, has started grading IHFL’s LAP book. Due to uncertain market conditions, IHFL has shored up the cash levels to Rs 140 billion and would keep it at high levels for next 2-3 quarters.
ZCBs have come down sharply and forms 3.1% of borrowings v/s 4.5% last year- wont issue further ZCBs sold loans of Rs 10.4 billion during the quarter and Rs 29.15 billion in 9MFY15. Reduction in risk weights has increased CAR by 170bps.
IHFL’s transformation from a diversified lender to a focused mortgage player has yielded returns, with RoE/RoA improving from 3%/0.8% in FY09 to 26%/3.5% in 9MFY16.
Focus on mortgage and market share gains will drive AUM growth of 24% for the next three years. De-risked business model, superior profitability and +5% dividend yield warrant premium.
The stock is trading at PBV of 2.3x FY17E. Maintain ‘buy with a target price of Rs 907 (3x FY17E PB).
