IndiaBulls Housing Finance Initiating Coverage Research Report By Ventura

Indiabulls Housing Finance (IHFL) is now focused on the housing loan segment. It has executed consistently on its strategy of expansion by

– focusing on the affordable housing segment,

– growing its loan book using better technology,

– leveraging its financial strength and improving its ratings to increase competitiveness

– and diversifying its funding mix to reduce funding costs.

In its quest for growth, it has continued to maintain adequate liquidity and adhere to prudent risk management policies for assets under management. We initiate coverage on IHFL with buy rating and price target of Rs1010.

IHFL should be part of a long-term investors’ portfolio for the following reasons:

– IHFL grew its loan book at a CAGR of 31.0%, from Rs355bn in FY14 to Rs608bn in FY16. We believe that its focus on the affordable housing segment will help IHFL as the segment has a nice tailwind from various government and policy initiatives.

– IHFL has access to diversified and cost effective funding sources. Longterm loans, non-convertible debentures, global bonds issued in Rupees and international currency will help IHFL keep its NII around 3.8% in FY18E.

– It has a presence in the higher yield LAP segment and has kept its credit costs in check by focusing on residential properties. Its corporate loan segment is focussed on the high yield-low risk lease rent discounting segment.

– We expect IHFL to deliver a PAT CAGR of ~19% over FY16-18E. At CMP of Rs.628, the stock is trading at 2.3x and 2.0x its estimated adjusted book value for FY17 and FY18, which is attractive in relation to growth.