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CLSA
IB Housing (Buy)
CMP: ₹1,181.35
Target: ₹1,650
Our interactions with the management of Indiabulls Housing Finance indicate that: 1) the recent hike in lending rates can help to expand spreads q-o-q (stable y-o-y) despite a rise in funding costs; 2) there is some uptick in premium-end housing; and 3) the competitive environment is stable as large banks/PSUs are focussing on internal/asset-quality issues. On spreads, while wholesale rates have surged, the hike in lending rates and credit rating upgrades are helping; access to low-cost forex borrowing has improved.
The management targets to raise the share of housing loans to 66 per cent of the total. While these generate lower spreads, lower credit costs and opex compensate for that. Clarity on Ind-AS is awaited: 1) MTM gains on stake in OakNorth Bank can lift net worth by about 6 per cent; and 2) while zero coupon bond (ZCB) cost can drag down the profit by about 5 per cent, this may be compensated by credits from deferred tax liability (DTL), amortisation of origination costs, etc. We see a 22 per cent CAGR in profits over FY18-21.
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