Indiabulls Housing Finance (Q1 FY15)

India Infoline News Service | Mumbai |

Indiabulls Housing Finance’s loan assets growth moderated sequentially from 20% yoy in FY14 to 14% yoy in Q1 FY15.

CMP Rs392, Target Rs771, Upside 96.7%
  • Loan assets growth was behind expectations at 14%; but likely to revert to 23-25% by the year-end

  • Balance sheet to remain robust and liquid

  • Spreads to come-off in the near term but stabilize in the longer term

  • Asset quality intact; earnings growth strong

  • Retain BUY with 24-month target of Rs771

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Operating Income 13,676 13,224 3.4 12,097 13.1
Interest Expenses (8,894) (8,522) 4.4 (7,136) 24.6
Net Interest Income 4,781 4,702 1.7 4,961 (3.6)
Other income 2,352 2,463 (4.5) 1,343 75.2
Total Income 7,133 7,164 (0.4) 6,303 13.2
Operating expenses (1,777) (2,473) (28.1) (1,593) 11.6
PBT 5,356 4,692 14.2 4,711 13.7
Tax (1,118) (176) 534.0 (1,196) (6.5)
Minority & Others 0 (1) (31)
PAT 4,238 4,515 (6.1) 3,484 21.6
EPS 12.7 13.5 (6.2) 11.2 13.7

Key  Ratios Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
NIM* on loan assets (%) 4.6 4.7 (0.1) 5.6 (1.0)
Yield* on loan assets (%)  13.2 13.2 (0.0) 13.6 (0.4)
Int exp* on loan assets (%) 8.6 8.5 0.1 8.0 0.5
Cost/Income Ratio (x) 24.9 34.5 (9.6) 25.3 (0.4)
Effective Tax Rate (x) 20.9 3.8 17.1 25.4 (4.5)
GNPA (%) 0.8 0.8 0.0 0.8 0.1
NNPA (%) 0.4 0.4 (0.0) 0.3 0.0
RoA (%) 4.1 4.5 (0.4) 3.9 0.1
Source: Company, India Infoline Research

Loan assets growth was behind expectations at 14%; but likely to revert to 23-25% by the year-end

Indiabulls Housing Finance’s loan assets growth moderated sequentially from 20% yoy in FY14 to 14% yoy in Q1 FY15. The deceleration in growth was largely driven by conscious run-down of the CV portfolio which de-grew 18% qoq and 35% yoy. Its contribution in total loan assets declined to 4% as compared to 7% in Q1 FY14. Strong growth momentum in retail mortgages (75% of loan assets; split between home loans:LAP as 67:33) continued with the book growing at 19% yoy. Company’s small market share, stable-to-increasing property prices and improving distribution/acquisition would enable it to sustain robust growth momentum over the next few years. The commercial credit (largely LDR/construction finance to developers) book of the company grew by healthy 14% yoy. Despite a slower-than-expected start to the year, we believe that IHF would deliver 23-25% growth in FY15. 

Balance sheet to remain robust and liquid

The securitization activity saw sustained traction with loans sold in preceding 12 months standing at Rs40bn and the outstanding stock at Rs56bn. Going forward, company intends to sell down 30-40% of incremental origination and therefore proportion of securitized loans is expected to increase. At the end of the quarter, IHF had cash and equivalents (liquid investments) of Rs74bn forming 16% of total assets representing a robust and highly liquid balance sheet. We estimate the share of securitized portfolio increasing to 18% by the year-end and company maintaining balance sheet liquidity in the range of 15-18%.  

Spreads to come-off in the near term but stabilize in the longer term

Q1 FY15 NII came-in slightly weaker-than-expected but primarily driven by moderation in asset growth. NIM (calculated on loan assets) declined by 10bps qoq as expected on the back of segmental shift in asset mix and firming-up of borrowing cost during the quarter. In the coming quarters, the blended  lending yield is expected to come-off as better-than-average yielding CV portfolio (14.6% v/s 13.6% for overall book) runs-off completely, relatively lower-yielding mortgages grow faster than commercial credit and incremental yields in LAP has been lower (14.5% v/s 15.5% for the existing portfolio). This headwind would be partially offset by cyclical softening of funding cost and improving mix of borrowings. While currently, the borrowing mix is skewed towards bank loans (share at 60%), its share in incremental borrowings stood much lower at 48% (44% was through bonds, a relatively stable and cheaper source).


Asset quality intact; earnings growth strong

Overall asset quality was stable during the quarter with sustained strong credit performance in retail mortgage and commercial credit segment. Both Gross NPLs (0.8%) and Net NPLs (0.4%) were within the guided band of 70-90bps and 30-50bps respectively. Management expects NPL ratios to marginally improve by the end of the year. Total provisioning stood at Rs65cr translating into annualized credit cost of 63bps. However, of it, specific provisions were low at Rs100mn and company created a counter-cyclical provisioning buffer of Rs450mn. Notwithstanding this, IHF’s profit grew by strong 22% yoy.   

Retain BUY with 24-month target of Rs771

IHF is one of the fastest growing and the most profitable housing finance companies. Strong asset quality, liquidity and capitalization underlie its robust balance sheet. Over the next three years, we don’t expect any dilution in company’s performance both on growth and profitability front. Rather, increasing securitization should lead to further improvement in RoE. With the company estimated to deliver average RoA and RoE of 4% and 32% respectively over FY14-17, current valuation at 1.5x FY17 P/ABV appears extremely attractive. High dividend yield on the stock further sweetens the buying proposition. We expect IHF price to nearly double from current levels over the next couple of years


Financial Summary
Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E
Total operating income 26,789 32,427 40,439 50,393
yoy growth (%) 23.0 21.0 24.7 24.6
Operating profit (pre-prov) 22,678 27,534 34,421 42,931
Net profit 15,642 18,761 23,691 29,650
yoy growth (%) 24.3 19.9 26.3 25.2
 
EPS (Rs) 47.0 56.3 65.6 82.1
Adj.BVPS (Rs) 166.4 188.3 222.0 265.9
P/E (x) 8.4 7.0 6.0 4.8
P/BV (x) 2.4 2.1 1.8 1.5
ROE (%) 28.8 30.8 32.3 32.8
ROA (%) 3.7 3.8 4.0 4.2
Dividend yield (%) 7.3 7.3 7.3 8.1
CAR (%) 19.1 18.0 18.8 19.1
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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