Indiabulls Housing Finance

Will not need to dip into capital for provisioning –Indiabulls Housing

Update on the Indian Equity Market:

On Wednesday, Nifty closed with0.7% gains at 11,605. Within NIFTY50, DRREDDY (+4.4%), M&M (+4.0%), and HINDALCO (+3.9%) were the top gainers, while INDUSINDBK (-2.0%), NTPC (-1.6%), and INFRATEL (-1.1%) were the top losers. Among the sectoral indices, REALTY(+2.3%), PHARMA (+2.1%), and AUTO (+1.5%) gained the most. MEDIA (-1.6%) andPSU BANK (-0.5%)ended with losses.

Will not need to dip into capital for provisioning –Indiabulls Housing

Excerpts of an interview with Mr. Gagan Banga, Vice Chairman and MD, Indiabulls Housing Finance (IBULHSGFIN), aired on CNBC-TV18dated 15th September 2020:
• Indiabulls Housing has raised Rs 6,830 mn via QIP and Rs 5,220 mn through stake sale in OakNorth bank to build capital buffer. This will be used as growth capital. With this capital raise, the capital adequacy has gone up to 31%.
• Higher capital buffer will also help as a positive affirmation for credit rating agencies. Indiabulls Housing has been on a downward rating trajectory from AAA to AA. Management wants to get it back atleast to AA+ levels.
• Management has plans to increase capital further by about Rs 10,000 mn and increase capital adequacy up to 32%.
• In 1QFY21, AUM was flattish and similar trend persists for 2QFY21. Management expects growth from 2HFY21.
• Indiabulls Housing continues its strategy of reducing the real estate developer book. The gross developer book has reduced by Rs 180 bn in the last 2 years. In 1QFY21 and 2QFY21 the sell down has been about Rs 30 bn and 21 bn respectively. These developer loans are being refinanced by Indian PSU and private banks, as well as through a few securitization transactions with foreign institutions.
• Of the Rs 180 bn sell downs so far, there has been no discount required as the properties are prime with good LTVs of ballpark 50%.
• As a result of reduction in developer loans book, Indiabulls Housing is getting converted into a retail lending focused company.
• As Indiabulls Housing pursues growth in retail book, management expects AUM growth of 10% for FY21E. True to the adopted asset light model, the balance sheet growth will remain lower at 5%.
• Within retail book, the ratio of home loans to Loan Against Property (LAP) is 60:40.LAP segment on a risk adjusted basis has attractive RoA. On the asset quality front, this product has a 50% LTV and monthly principal amortization and the product is performing well.
• Through the last few months, initially 50-55% of LAP borrowers had taken moratorium but by August the number had declined to 20%. By September, the EMIs are getting backed and there is no significant increase in people who are not able to pay.
• Indiabulls Housing also raised Rs 15 bn to put into completion of projects which is a positive for the industry. Over the last 60-90 days, apartments across the board are selling at a strong momentum.
• Indiabulls Housing is now at a quarterly pre-provisioning operating profit (PPOP) level of about Rs 6,000 mn. Like in 1QFY21, material portion of the PPOP will be used to make provisions throughout FY21E. Indiabulls Housing will not need to dip into capital for provisioning.

Consensus Estimate (Source: market screener and websites)
• The closing price of IBULHSGFIN was ₹ 187/- as of 16-September-2020. It traded at 0.5x/ 0.5x/ 0.4x the consensus BVPS estimate of ₹ 392/408/ 445 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 160/- implies a PE multiple of 0.3x on FY23E EPS of ₹ 473/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8th November 2019 on CNBC TV-18:

  • Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
  • Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
  • IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
  • In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
  • Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

Consensus Estimate (Source: market screener and website)

  • The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
  • Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.

Indiabulls Housing Finance 1QFY20 result update: Asset quality deteriorates sequentially.

Dated: 7th August 2019

  • Loan assets declined 10% YoY to Rs 1,131 bn. The decline is primarily due to efforts taken for reduction in the Commercial Real Estate (CRE) book.
  • NII at Rs 14,750 mn was 13% lower YoY. Pre-provisioning operating profits at 12,536 mn were 15% lower YoY.
  • Provisions were at Rs 1,476 mn compared to Rs 649 mn and Rs 1,645 mn in 1QFY19 and 4QFY19 respectively.
  • PAT at Rs 8,020 mn was lower by 24% YoY.
  • Asset Quality worsened sequentially from GNPAs and NNPAs of 0.88% and 0.69% respectively in 4QFY19 to 1.47% and 1.10% respectively in 1QFY20.

Management Commentary:

  • IBHFL reduced exposure to CRE loans amounting to Rs 60 bn in 1QFY20. Efforts to reduce CRE exposure is in anticipation of the proposed merger with Lakshmi Vilas Bank (LVB).
  • Management has guided to quarterly disbursements of Rs 100 bn from 2QFY20. Guidance for loan book growth for FY20E is in mid-teens.
  • Management expects spreads to remain stable in 300-325 bps range.
  • IBHFL recovered Rs 7 bn from Palais Royale in 1QFY20 against earlier guidance of Rs 2 bn. Against the recovery, Rs 4.5 bn was used to make additional voluntary provisions. Under ECL norms, companies cannot make floating provisions. Hence IBHFL has proactively classified certain accounts as Stage 3 (including Zee group, CCD group) and provided against them.

Consensus estimates (Source: Marketscreener website):

  • IBHFL closing price (as on 07-08-2019) was Rs 446/- per share. It was trading at a P/B of 1.1x/ 0.9x its book value per share estimates of Rs 417/ 493 for FY20E/ FY21E respectively. Consensus target price over next 12 months is Rs 910/- implying P/B of 1.85x for FY21E BV of Rs 493