Indiabulls Housing Finance rating: Nomura pegs it at Neutral, says fine showing on most parameters

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Published: October 28, 2017 2:50:16 AM

IHFL reported 2Q PAT of Rs 8.6 bn, in line with our expectation. AUM growth held up well at 33% y-o-y, with mortgages growing at 3% y-o-y. IHFL was also able to hold up NIM better than our expectation, as it bridges the gap between its borrowing cost vs. top HFCs.

Indiabulls Housing Finance rating, nomura, HFCs, NIM, AUM growth, affordable housingIHFL was also able to hold up NIM better than our expectation, as it bridges the gap between its borrowing cost vs. top HFCs.

IHFL reported 2Q PAT of Rs 8.6 bn, in line with our expectation. AUM growth held up well at 33% y-o-y, with mortgages growing at 3% y-o-y. IHFL was also able to hold up NIM better than our expectation, as it bridges the gap between its borrowing cost vs. top HFCs. With AUM and margin outcomes better than our expectation, we raise our TP to Rs 1,400, but keep Neutral on rich valuations. Growth momentum led by affordable housing: AUM grew 33% y-o-y, driven by 43% core mortgage growth and 33% y-o-y growth in the corporate/builder book. Management indicated that <Rs 2.5m ticket size has grown 30% y-o-y at the industry level, and this segment continues to drive growth for IHFL.

Funding improvement continues, aiding margins: Almost 90% of the funding in Q2FY18 was from bonds, with bonds/CPs now at 64% of total liabilities, from 45% in FY16. IHFL has been able to bridge the gap with top HFCs like LICHF and the gap is now just 20bp on blended basis. IHFL has been able to leverage on this improvement in funding cost to build its core mortgage portfolio without compromising on spreads. Our view and valuations: IHFL is delivering well on core mortgage growth. We thus increase our FY18-20F PAT estimates by 4-8%, while maintaining our Neutral stance, with a higher TP of Rs 1,400 as current valuation at 3.3x Sep-19 book is not undemanding.

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