Buy Indiabulls Housing Finance; target of Rs 1550: Motilal Oswal

Motilal Oswal's research report on Indiabulls Housing Finance

Indiabulls Housing Finance's (IHFL) PAT grew 26% YoY to INR 8.6b (4% above our estimate). Core operating performance was robust, with strong AUM growth (+33% YoY) and stable spreads. However, other income (income from the liquid investment book) remains subdued due to lower incremental yields. Note that IHFL had generated a good spread on its investment book above cost of funds in FY16 and FY17 - that is beginning to vanish now.

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 25%+ over the next three years. IHFL is among the lowest-levered HFCs. Asset quality trend is likely to remain stable. We keep our EPS estimates largely unchanged. Maintain Buy with a TP of INR 1,550 (4x Sep19E P/B).