CRISIL Research has come out with its report on Indiabulls Housing Finance. The research firm has assigned valuation grade of 3/5 and fundamental grade of 4/5 to the company.
CRISIL Research's report on Indiabulls Housing Finance
Indiabulls Housing Finance Ltd (Indiabulls) is one of India’s leading housing finance companies with retail mortgage assets under management (AUM) of Rs 397 bn and overall AUM of Rs 522 bn. Higher proportion of high-yielding assets and risk management capabilities have enabled the company to generate superior returns vis-à-vis peers while maintaining asset quality. Established position in the housing finance industry, wide distribution reach and management experience place it aptly to capture the industry growth potential. However, competition from commercial banks and maintaining asset quality in the risky commercial credit segment are monitorables. We initiate coverage on Indiabulls with a fundamental grade of 4/5, indicating that its fundamentals are superior relative to other listed securities in India.
Higher proportion of high-yielding assets has enabled Indiabulls to generate returns higher than that of peers. Around 50% of its loan book comprises home loans and the remainder consists of higher yielding loans against property (LAP) and commercial credit. Driven by a 2,300-member sourcing team and a network of 220 branches (of which 70% are in tier II/III cities), Indiabulls’ loan book has grown at a CAGR of 24% over FY12-15. Even though risky assets constitute a sizeable proportion of the company’s book, asset quality has been healthy with GNPAs being under 1% for the last three years, demonstrating its risk management capabilities.
We have valued Indiabulls by the price-to-book (P/B) multiple method. We have assigned P/B multiple of 2.7x to the FY17 adjusted book value per share of Rs 234 and arrived at a fair value of Rs 632 per share. At the current market price of Rs 582, the valuation grade is 3/5.
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