Buy Indiabulls Housing Finance; target of Rs 1011: Edelweiss

Indiabulls Housing Finance (IHFL) continued to clock consistent and operationally strong earnings even amidst challenging environment. Earnings were supported by better liquidity in turn aiding both lower funding cost and higher float income, partially used to make countercyclical provisions. Notwithstanding demonetisation, growth momentum sustained (AUM up >30% YoY) and collection efficiency was maintained (>99%), a commendable feat. IHFL maintained growth guidance of 23- 27% across financial parameters. An optimal product strategy with stringent risk mitigants, stable franchise, high liquidity and low gearing will sustain superior return ratios (RoA/RoE of >3%/25%). Maintain ‘BUY’.

An optimal product strategy with stringent risk mitigants to manage NPLs, stable franchise, high liquidity and low gearing will help IHFL deliver consistent 18-20% earnings CAGR over FY16-19E and sustain superior return ratios - RoA/RoE of >3%/25%. As we roll forward to FY19E, we maintain ‘BUY/SO’ with target price of INR 1,011. At CMP, the stock trades at 2.3x FY19E P/ABV.