Indiabulls Housing Finance PAT of Rs 6.8 billion was broadly in line with our expectations. The key positive was a pick-up in growth (32% y-o-y growth) v/s LICHF reporting a slowdown and funding mix improving with the share of bank loans dipping by 500bps in FY16. Funding costs may surprise positively over FY16-18F given the tax clarification on securitised transactions and the company’s disclosure relating to LAP indicates stability. We expect IHFL to deliver 25% loan growth over FY16-18F and ROEs to inch to 28% again by FY19F. Valuations at 1.9x March 18 book are reasonable. Maintain ‘buy’ with revised TP of Rs 900.
IHFL delivered 32% y-o-y growth with strong growth across all categories including pure mortgages at 34% y-o-y. Tax benefits given for affordable housing construction and higher exemptions on housing loans will add to growth in the core mortgage book for Indiabulls.
IHFL’s average cost of funds has fallen to 9.3% and is incrementally borrowing through bonds at 8.8-8.9%. Also, the share of bonds has been steadily rising after a 3QFY16 blip which will likely continue. While CRISIL has refrained from upgrading IHFL to AAA due to unfavorable macro, management believes that tax clarification on pass through certificates and RBI’s liquidity stance will lead to further reduction in cost.
GNPAs was stable and IHFL’s CRISIL/CARE grading disclosures also indicated stability with 99% of incremental LAP loans disbursed being top-3 grades on a 5 point scale.