IHFL is forming co-origination partnerships with select PSU banks, like BOB and SBI, and progress there is key.
Indiabulls Housing Finance (IHFL) said that the Ministry of Corporate Affairs (MCA) has filed an affidavit with the Delhi High Court stating that the five loan cases alleged in the appeal are either repaid or standard loans. While the court’s decision is pending and more filings will be made, this development should abate some concerns. Clarity here can also improve IHFL’s access to the debt markets, aiding liquidity and growth.
Valuations are attractive and can rerate as concerns recede; we reiterate BUY with a target price of Rs 450.
MCA affidavit should abate concerns: IHFL said that the MCA has issued an affidavit to the Delhi High Court stating that five instances of loans where a PIL was filed against the company have either been repaid or are standard loans. The appeal had raised the possibility of siphoning of funds in loans made by IHFL to companies like DLF, Amricorp, Vatika, ADAG and Chordia.
Access to debt markets and co-origination partnership key: Adequate access to debt markets, bonds and bank loans is key for liquidity and growth for IHFL. Clarity on the court case should abate concerns. IHFL is forming co-origination partnerships with select PSU banks, like BOB and SBI, and progress there is key. Our base case factors in moderate progress here and hence loan growth will stay subdued till FY21 and will drag earnings. A 200bps higher growth can lend 3% upside to FY21 earnings.
Valuations attractive: Current valuations are attractive and receding risks on court cases and uptick in growth can drive re-rating. We reiterate our BUY call and raise target price to `450 (`350 earlier) on 1.2x Sep-21 adj PB to factor in these developments.