Buy Indiabulls Housing Finance; target of Rs 1350: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on Indiabulls Housing Finance

Indiabulls Housing Finance's (IHFL) PAT grew 23% YoY to INR7.8b (8% below our estimate), mainly driven by lower-than-estimated income on investments. Core operating performance was robust, with strong AUM growth (+33% YoY), stable spreads and a decline in C/I ratio.  Management alluded to strong growth witnessed in the home loan segment, especially the mass housing segment. Disbursements were up 39% YoY in home loans. Yields continue to remain under pressure (down 14bp QoQ and 94bp YoY to 11.49%). However, due to the sharp decline in cost of funds, reported spreads remained intact at 3.24%. Management continues to guide for incremental spreads in the range of 2.75-3% and book spreads of 3-3.25%. We believe the company will continue delivering at the higher end of its guided range over the foreseeable future.  The share of home loans in the overall book inched up 100bp to 57%. Management reiterated its guidance of 66% share of home loans by FY20.  The liability mix continued to evolve in favor of NCDs. Management plans to raise bulk of incremental funding from NCDs, taking the share of NCDs to 60% by FY20 (currently 52%).

Outlook

IHFL's transformation from a diversified lender to a focused mortgage player has yielded returns, with RoE/RoA improving from 3%/0.8% in FY09 to 26%/3.4% in FY17. Focus on core mortgage loans and market share gains should drive AUM growth of 29% over the next three years. Also, capital consumption will be lower, with a gradual shift toward individual home loans and increased sell-downs. IHFL is among the lowest-levered HFCs. Asset quality trend is likely to remain stable. While we marginally increase our AUM growth estimates, we cut overall EPS estimates for FY18/19 by 4%/5% to factor in lower investment income. Maintain Buy with a TP of INR1,350 (3.7x FY19E P/B).

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