Eye 20-25% growth; UK-transaction complete: Indiabulls Hsg

Indiabulls Housing Finance’s acquisition of the UK-based OakNorth Bank did not garner a positive response from the market with its stock falling nearly 17 percent post the announcement. Speaking to CNBC-TV18, Gagan Banga, Vice-Chairman& MD of the company said that the UK transaction happened on a holiday and thus failed to make impact on the market. However, the shareholders are happy with the acquisition, he added.”Premium paid for the bank is justified,” he said. Banga added that the transaction has been completed and the company has invested capital in the bank for next 36 months. The company has the Reserve Bank’s nod for USD 100 million investment into the bank. The company is aiming for a 20-25 percent growth in all parameters, Banga said adding that he expects net interest income and profit after tax to grow in range of 22-25 percent in FY16 and FY17. The revenue expectation for the current fiscal is Rs 2,350-2,370 crore and Rs 3,400 crore for FY18, he said. Indiabulls Housing is also hoping for a rating upgrade from atleast one agency this year.Below is the verbatim transcript of Gagan Banga’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: The first question is on that UK acquisition because the market didn’t like it, but is the transaction is still well and truly on or is there any kind of re-think on that?A: I don’t think it was a situation of the market not liking it is reflected in the stock as well. I think there was clearly given the fact that, given the political event in London the timing of the transaction turned out to be on a public holiday. It was perhaps not very well understood by the market. However, our large shareholders have shown great confidence in the management’s decision and in the merit of the decision, which is why the stock today trades at a small premium to where it was on the day prior to the announcement of the transaction. The transaction is done, we are proud controlling shareholders of OakNorth Bank. I continue to be a strong believer in the fact that this would open up many options. It would definitely over the long run be a huge credibility rub off benefited would accrue to the company.Ekta: You have invested around a USD 100 million for that 40 percent stake approximately the banks So that money has already flown out as per my understanding then and would there be any more incremental investments that we could be looking at? A: The transaction had culminated at the time that we made the announcements so it was an event which was going on in parallel. So, there are two very important pieces of information which perhaps should be known to your viewers and our stakeholders. One – the permission from Reserve Bank of India (RBI) is very specific and therefore we have permission for USD 100 million and we can’t invest a USD 101 million so this is it. This amount of capital has been plugged into the business plan as has been approved by Bank Of England for OakNorth Bank for the next 36 months. The bank does not need capital and we will not be infusing any more capital into this or any other merger & acquisition (M&A) activity. There is nothing which is on the table or we proposed to do. The other is that within about a week of this transaction getting announced BBVA which is one of the largest European banks enjoying a market capitalisation of around USD 50 billion has invested in a bank which goes by the name of Atom Bank which is bank again in the challenger bank licence class of Bank of England. It is about six to seven months behind in the process of licensing to OakNorth Bank. BBVA has valued Atom Bank at exactly the same valuation that we did for controlling stake. They have taken only 29.5 percent. So, in some sense the premium that we paid for control has been more than justified and the valuation as paid by BBVA is also a validation of the very large opportunity which exits in United Kingdom for this bank. If there is a large opportunity and if we are able to make good of that opportunity through this vehicle I am sure it will have a longer term massive benefit for Indiabull Housing back home in India.Anuj: Let us talk about overall business; your last quarter was good in fact your last many quarters have been good. You have seen a double digit profit growth and significant net interest income (NII) growth as well. However, now the base effect will catch up so for your shareholders what kind of growth trajectory do you think your company will be able to achieve from here on?A: The company has been talking about a 20-25 percent growth across all financial parameters be it NII or profit after tax (PAT) growth. I continue to remain reasonably optimistic that we will not only achieve this guidance for the year but we should be in a position to repeat this guidance for our financial year 17. The company is putting in place all the building blocks required to continue to compound at this space of 20-25 percent which has been our base for the last 25 quarters. Over the next 18 quarters we also hope to get pass the very important milestone of a lakh crore for our balance sheet. That would assume that at at 20-25 percent growth we would be at a profit after tax number of approximately Rs 3,400 crore. So, in terms of putting in all the qualitative and quantitative building blocks in place we have done so through the course of the last year and a half. There has been a massive change which has been bought about in the overall group structure and whatever Indiabull Housing finance does to ensure that this growth journey continues. One is extremely confident of continuing with this 20-25 percent growth and also with our long-term dividend payout policy of 50 percent of profits.Ekta: So Rs 3,400 crore in terms of profits is what you are estimating for FY16?A: It is for FY18. FY16 will be around Rs 2,350 to 2,370 crore that is the ballpark. Ekta: The other key trigger which a lot of people are looking for is may be your meeting with rating agencies. Where does your credit rating stand at this point in time? How have they read the UK transaction and when can we expect an upgrade based on your interactions with them?A: We are already rated AAA by two rating agencies and we are in constant touch with other rating agencies. One is optimistic that the rating agencies which rate us at AA+ level will also look at doing a positive review of our credit ratings in the near-term. The numbers that I spoke to you about are actually assuming an interest rate static scenario as well as credit ratings to be where there are. Both reducing interest rate scenario as well as an upgrade in the credit rating will actually add further momentum to these earnings. I am personally very confident that with our net worth today at almost Rs 10.50 thousand crore a unique position where in the larger universe of all non bank finance companies and housing finance companies by net worth, by profits and by market cap now we are number two. Also that we are today clipping both on net worth and net profits milestones which have not been achieved by privately owned non-bank finance companies or housing finance companies. So, these are all a great strength that the company has and they have obviously been taken on record by all of our rating agencies. I am very optimistic that you should hear some good news on that shortly.