24 Oct 2013

2QFY14 Results Update |Sector: Banking & Finance

IndiaBulls Hsg Fin.

CMP: INR191

Healthy AUM growth; stable spreads QoQ; tight control on opex;

12.5% dividend yield

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Indiabulls Housing Finance reported PAT growth of 23% YoY and 6% QoQ to

INR3.7b, driven by healthy net income (increased by 28% YoY) and stable

operating expenses. Key highlights for the quarter were a) stable spreads

QoQ at 350bp, b) AUM growth of 23% YoY (~4% QoQ) and c) marginal

increase in GNPA (+7bp QoQ to 85bp).

AUMs grew by 23% YoY and ~4% QoQ to INR381.6b. Overall AUM mix

skewed slightly in favor of mortgages (73% share v/s 72% in 1Q), followed

by corporate loans (21%) and CV segment (6% v/s 7% in 1Q). IBHF did not

disburse loans in CV segment due to stress in underlying asset.

Disbursements growth was moderate (+6.1% YoY and

‐1.4%

QoQ) due to

tight liquidity conditions.

Blended cost of funds increased 20bp sequentially to 10.2%, which impacted

incremental spreads (down 10bp QoQ and stood at 320bp). On books,

spreads remained stable at 350bp sequentially.

At the beginning of quarter IBFH had surplus liquidity of INR71b (cash and

cash equivalent) which helped tide tight liquidity during last quarter. IBHF

did not roll over INR6b of CP that came for maturity during the quarter.

Corporate NPL led to marginal spike in NPLs: GNPA stood at 0.85%,

increased 9bp YoY and 7bp QoQ ; NNPA stood at 0.44%, up 13bp YoY and

10bp QoQ. One corporate account worth INR1.5b turned NPL during the

quarter which led to marginal increase in NPLs. Management is confident of

recovery as company has adequate asset cover.

Relief on provisioning and capital requirements due to change in NHB

guidelines in respect of standard loans for Commercial Real Estate –

Residential Housing has helped release 170bp of CAR (20.32% vs 18.62% a

quarter ago).

IBFH declared interim dividend of INR7 per share; 1H dividend is INR13 per

share. Management has guided FY14 dividend of INR24 per share. At

current price, dividend yield is 12.5%.

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IndiaBulls Hsg Fin.

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Despite high interest rates, rigid property prices and stiff competition in the

housing finance segment , IBHL has been able to sustain a healthy growth

momentum in the individual mortgage segment and has become a sizable

player, which is commendable.

Management remains confident of maintaining the healthy growth

momentum and stable asset quality. The HFC status, would help IBHL to

contain its cost of funds making it more competitive in the market and also

reduce capital requirements.

Based on Bloomberg estimates, the stock trades at 0.95x FY14 and 0.84x

FY15 P/B.

Valuation and view

•

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Conference Call highlights:

AUM mix and growth:

‐

Disbursements during the quarter stood at ~INR35b as compared to INR33b in

2QFY13. Mortage and LAP were 75% of incremental disbursement whereas 22%

were for corporate credit.

‐

Of the overall mortgage loan (73% of AUM), 46% is towards housing loan

whereas 27% is LAP (mainly self‐employed customers). Further within housing

segment 70% of the loan is towards salaried customers, whereas 30% is to self‐

employed customers.

‐

Product wise assets yield (1) home loans – 11.7%, (2) LAP – 16.4%, (3) CV –

14.5% and (4) commercial credit – 16%.

‐

The management remains confident of maintaining 20‐25% AUM growth for

next 3 years. 70% of loans are now being sources in‐house, this number to go

upto 75% by next year.

‐

Cumulative disbursement stands at INR790b to 0.58m customers.

Asset quality

‐

Asset quality continues to remain healthy and with increased proportion of

housing loans management expects credit cost to decline further.

‐

NPL break‐up‐ 24bp on Home loan, 28bp on LAP, 258bp on CV.

‐

Provisioning coverage stands at 142%.

Spreads & Borrowings:

‐

On a blended base cost of borrowings increased 20bp to 10.2%; Incrementally

the borrowing cost for the company is ~9.9% Vs 10% during 4QFY13.

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IndiaBulls Hsg Fin.

Management expects to maintain the on book spreads in the range of 325‐

350bp.

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Incremental Borrowing cost break‐up a) Bank 10.4% b) NCDs 9.7% c) CPs 10.7%.

Zero‐coupon bonds:

‐

As on June 2013, IBHL had INR16.5b worth zero coupon bonds and it did not

issue any additional zero‐coupon bonds over past two quarters. The expenses

charged on ZCB stood at 0.43b.

Other highlights:

‐

The management expects bottomline growth to be in line with AUM growth of

25%.

‐

Company continues to maintain healthy levels of liquidity with cash, cash

equivalents and investments in liquid debt instruments adding up to INR63b and

management wants to maintain such high level of cash and cash equivalent in

order to tide any liquidity crisis.

‐

Current gearing is at 5.14x. Comfortable gearing for the company is in the range

of 6x, thereby it does not intend to raise capital in near term. IBHF remains one

of the best capitalized HFC.

‐

Dividend policy: Although the 1H dividend payout is 58%; the stated dividend

payout ratio will remain at 50%, however if the profit growth is over 25% they

might consider shelling out higher dividends.

‐

CAR stands at 20.32% with tier 1 at 16 and tier 2 at 4.34%. Tax rate stands at

26.7% for the quarter.

‐

Warrants: 27m warrants to be converted over next 2 years at INR225; of which

20m warrants are with financial institutions and remaining 0.7m with promoters

and senior management.

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Exposure to 20:80 scheme stands at INR8.5b; have stopped lending under this

scheme. Exposure to Indiabulls real estate customers stands at INR5.5b.

AUM growth remains healthy at +23%

AUM mix skewed marginally towards mortgages (%)

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IndiaBulls Hsg Fin.

Bank borrowings increased 500bp sequentially (%)

Corporate NPL led to marginal spike in NPLs

Opex (incl. prov.) as % of net income has declined

Net gearing (x) has increased steadily

24 Oct 2013

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IndiaBulls Hsg Fin.

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