Indiabulls Housing Finance’s (IHFL) Q2FY19 is characterised by a steady core operating performance with AUM growth sustaining at 29% and earnings growing 20%-plus. However, amid the currently tight liquidity situation, management is focusing more on liquidity management than growth. This will lead to a near-term reset in growth, NIMs and return ratios. We anticipate AUM growth would trend near 25% and expensive incremental borrowing would weigh on NIMs. Asset quality — though stable currently (with Stage 3 assets at 0.77%) — will be a key variable if liquidity tightness persists for a while. That said, IHFL’s proven track record, comfortable liquidity position, reaffirmation of credit ratings and stringent risk mitigants suggest it will traverse through these challenges relatively smoothly. We trimmed asset growth, earnings and valuation multiples. Maintain ‘Buy’ with TP of `1,258.
Growth momentum sustained with AUM growth of 29% Y-o-Y to `1.29tn. In the current operating environment, management’s near-term aim is to focus more on liquidity management than growth. However, given adequate liquidity, rating reaffirmation (best-in-class) moderation in growth will be lower than peers, we anticipate growth of 25–27% (versus 30–35% earlier). However, at the same time, currently tight liquidity implies heightened risk to incremental funding cost, which can weigh on NIMs.
The stock is trading at 2.4x FY20E P/BV. We maintain ‘BUY/SP’. The company is fully matched across all the maturity buckets — 135% cover for 6 months’ liabilities outflows. The company has commercial paper of `150bn ( of the overall borrowing of `1.2tn), and expects this proportion to come down over a period. Having said that, the company is not seeing any refinancing challenge as of now.