Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8^th November 2019 on CNBC TV-18:

• Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
• Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
• IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
• In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
• Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

Consensus Estimate (Source: market screener and investing.com website)

• The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
• Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.