MOSL: INDIABULLS HOUSING FINANCE (Buy)-Core business trends stable but AUM growth to slow down

INDIABULLS HOUSING FINANCE – 2QFY19: Core business trends stable but AUM growth to slow down

(IHFL IN, Mkt Cap USD5.5b, CMP INR949, TP INR1150, 21% Upside, Buy)

• Indiabulls Housing Finance's (IHFL) PAT grew 21% YoY (-1% QoQ) to INR10.4b (3% miss) in a quarter characterized by robust loan growth, some margin pressure and stable asset quality.
• AUM increased 29% YoY to INR1.29t, driven by disbursement growth of 23% YoY to INR110b. IHFL sold down loans worth INR34.7b during the quarter, with another INR80b sell-downs planned for 2HFY19. While management has guided to 20% YoY AUM growth for FY19, our AUM growth estimate for FY19 is 16% YoY given the fact that AUM has grown only 5% over Mar-Sep 2018.
• Loan mix continues trending toward retail lending – home loans now account for 61% of total AUM v/s 58% a year ago and 54% two years ago. Management reiterated its target of achieving 66% share of home loans by FY20.
• Total income growth came in at 10% YoY – the slowest in the past several quarters due to the 34% YoY increase in interest expense. Calculated cost of funds increased 40bp YoY to 8.65%.
• Asset quality was largely stable, with stage 3 loans at 77bp and coverage ratio on the same at 25%. Credit costs of INR400m came in lower than our estimate of INR750m. Note that management had guided for a 70-80bp reduction in credit costs to 25bp under Ind-AS in the prior quarter.