Buy Indiabulls Housing Finance; target of Rs 866: Motilal Oswal

IHFL's PAT grew 23% YoY but declined 7% QoQ to INR 6.3b (In-line with our est. of INR 6.2b). Strong AUM growth of 30.9% YoY, stable asset quality and book spreads of 318bp were the key highlights of the quarter. AUM growth remained healthy at 31% YoY to INR 710b; Loan mix continues to shift in favor of housing loans—will increase from the existing 53% to 60% by FY18 and 65% by FY20. Home loan disbursements to the salaried segment is 70% and to the self-employed segment is 30% - would continue to maintain the proportion.

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%/3.5% in FY16. Focus on mortgage and market share gains will drive AUM growth of 26% over the next two years. IHFL is among the lowest-levered HFCs (4.6x) to support growth. Asset quality trend is likely to remain stable. Improved borrowing profile, better credit rating and liquidity buffer will aid the company maintain healthy spreads. De-risked business model, superior profitability and +5% dividend yield warrant premium. The stock is trading at PBV of 2.4x FY18E. Maintain Buy with a target price of INR866 (2.75x FY18E PB).For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.