MOSL: INDIABULLS HOUSING FINANCE (Buy)-IND AS transition positive; Asset quality stable

Indiabulls Housing Finance: IND AS transition positive; Asset quality stable

(IHFL IN, Mkt Cap USD8.1b, CMP INR1301, TP INR1650, 27% Upside, Buy)

• Indiabulls Housing Finance's (IHFL) PAT grew (under IND AS) 30% YoY to INR10.5b on back of 33% YoY growth in loans. While operating profits grew 18% YoY to INR14.6b, lower provisioning requirement under IND AS led to PBT growth of 32% YoY.
• Asset quality was stable QOQ with GNPA % at 78bp. Company reported gross stage loans of INR9.8b and coverage ratio on the same stood at 25% (flat YoY). For the first two stages provisioning requirement stood at 26bp of loans (based on historical evidence). Credit costs are guided to reduce to 25bp from 70-80bp earlier as home loans proportion increases and no floating provision concept under IND AS.
• Spread on loans improved 12bps QOQ to 3.23% led by 29bps QoQ rise in yield on loans vs 17bp QoQ rise in cost of funds. Incremental spreads on loans were flat at 2.8% Tax rate was at 25% for the quarter.
• IND AS transition impact on Networth - FY17 networth of INR121.25b increased to INR124.7b helped by: a) DTL reversal of INR1.5b b) EIR negative of INR1.5b c) Securitization income impact of INR3b. Oak North Bank MTM valuation reflected in FY18 networth hence networth increased to INR154b vs INR130b earlier. The company has not reversed additional provision of INR10.8b citing these provisions impacted by macro enabled factors.
• IND AS impact on 1QFY18 P&L - PAT of INR7.88b increased to INR8.1b due to: a) DTL reversal benefit of INR0.19b b) EIR negative of INR0.72b c) assignment income of INR0.64b d) adjustment of expected credit loss INR0.09b. Company has not reported revised earnings of FY18.