INDIABULLS

HOUSING FINANCE
EQUITY RESEARCH REPORT

PREPARED BY TUSHAR MANDHANA

 INDIABULLS HOUSING FINANCE

CONTENTS

I. Company Overview VII. Operational Highlights

Introduction Loan Book
Services Offered Loan Profile
Human Resource
Corporate Journey
Board of Directors
VIII. Income Statement
Management Team Revenue
Expenses
II. Industry Overview Associate
Introduction Taxes
Characteristics
Opportunities IX. Balance Sheet
Financial Assets
Risks and Impacts due to COVID-19
Non-Financial Assets
Financial Liabilities
III. Business Model
Company Verticals
New Asset Lite Model X. Cash Flow Statement
Branch Network Model Operating Activities
e-Home Loan Model Investing Activities
Financing Activities
IV. Financial Trends
Revenue and Net Worth XI. Analysis
Revenue and Income Growth Risk Return Statistics
Revenue, PAT and CFO Rolling Returns Distribution
PBT and PAT Margin
Net Interest Income and Margin XII. Valuations
Return on Equity and Assets Intrinsic Valuation
Capital Structure
Shareholding Pattern

V. Financial Highlights
Liability and Funding Mixture
Major NCDs
Loan Mixture
Equity Capital

VI. Operational Trends

Revenue Mix
Revenue and Employees
Loan Quality
Non-Performing Assets
Cost to Income
Capital Adequacy

Date: September 10, 2020

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 INDIABULLS HOUSING FINANCE

DISCLAIMER
This report has been prepared for academic purposes only and should not be interpreted as an investment
advice. It should not be used as a basis for any investment decisions or as a proposition to buy or sell any
securities. Please consult your financial advisor before making any such investment decision.

Primary information used for the preparation of this report includes company annual reports, investor
conference call transcripts, investor presentations and other information communicated by the company,
available in public domain. Secondary sources include industry research, analysis and information from
reputed third-party organizations, and sources have been citied at appropriate places.

Analyst

The report has been prepared by Tushar Mandhana.

Analyst Disclosure

He does not own or hold any position or stake in the company.

PAGE | 03
 INDIABULLS HOUSING FINANCE

COMPANY OVERVIEW

Introduction
• Indiabulls Housing Finance is a private and the third largest housing finance company in India with all
interests in the housing ecosystem.
• It was incorporated in 2005 and is a flagship company of the Indiabulls Group.
• As of 31 March 2020, the company has 272 branches in India, and 2 overseas branches in Dubai and
London to cater to non-resident Indians.

Services Offered
• Home loans for resident Indians and NRIs
• Loan against property
• Residential construction financing
• Home loan balance transfer
• Lease rental discounting

Corporate Journey

2000- 2007 2008-2015 2016-2020

• Started as an NBFC • Loan book crosses Rs. • Launch of e-Home Loans:

• Launch of secured
mortgage and commercial
vehicle loans
• Home loans to prime
salaried segments
• IPO and listing
10,000 Cr
• Exit from unsecured
personal and business
loans.
• Conversion to HFC
India’s first digital home
loans platform
• Inclusion in Nifty50 Index*
• Ranked by Forbes as 13th
largest consumer financial
services company globally

*The company was dropped from Nifty50 Index in September 2019.

Board of Directors

Executive Independent
Sameer Gehlaut (Founder) Justice Gyan Sudha Misra
Subhash Sheoratan Mundra (Chairman) Samsher Singh Ahlawat
Gagan Banga Prem Prakash Mirdha
Ajit Kumar Mittal Satish Chand Mathur
Ashwini Kumar Hooda Achuthan Siddharth
Sachin Chaudhary

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Management Team

Name Role Name Role

Gagan Banga Vice-Chairman, MD & Ashwin Mallick Head, Treasury
CEO
Ashwini Kumar Deputy Managing Director Ramnath Shenoy Head, Analytics and Investor
Hooda Relation
Ajit Mittal Executive Director MS Walia Director, Sales- Home Loans

Mukesh Garg Chief Financial Officer Ripudaman Bandral National Sales Head-LAP

Sachin Chaudary Chief Operational Officer Rajiv Gandhi Head, Commercial Credit

Nafees Ahmed Chief Information Officer Somil Rastogi Head, Credit- Retail

Notes:
• Mr. Sameer Gehlaut has relinquished as the Chairman of the company with effect from 12th August
2020, Mr. Subhash Mundra (Former Deputy Governor of RBI and MD of Bank of Baroda) has taken
over the same role. Mr. Gehlaut has been re-designated as Non-Executive Director of the company.
• This has taken place as Mr. Gehlaut has taken up the position of Chief Executive Officer of Indiabulls
Venture Limited.

Others:
• The proposed merger of Indiabulls Housing Finance, Indiabulls Commercial Credit Limited and Laxmi
Vilas Bank in April 2019, failed to receive approval from the Reserve Bank of India after an uncertain
period of 6 months for the company.
• For the merger, the company had to get rid of its short-term liabilities and shrink the balance sheet by
20%. The reason for the rejection though not clear has been citied non-encouragement of route of entry
into banking through mergers.
• In August 2020, Indiabulls Real Estate has announced a merger with the Embassy Group. The merger
denotes Indiabulls Group exiting the real estate business with increased focus on the financial services
sector.

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 INDIABULLS HOUSING FINANCE

INDUSTRY OVERVIEW

Introduction
• The industries in focus are divided into lending for housing, residential real estate sector, NBFC and affordable
housing.

Characteristics
• The NBFC sector in India witnessed growth until the first half of 2018, accounting for nearly 18% of the total
formal credit flow.
• The industry has been stressed with liquidity crunches and subdued demand since the IL&FS crisis, further
COVID-19 pandemic accentuated the slowdown.
• Strong barriers to entry due to regulatory compliance, access to financing, security concerns and recessive
impact of real estate sector.

Opportunities
• The industry has received major government push through fiscal incentives, Housing for All by 2022 program
and PMAY.
• RERA (Real Estate Regulatory Authority) established in 2017, has brought discipline and transparency in the
real estate industry.
• Perceived consumer preference for own house as a ‘safe zone’ to create possible sales.

Risks and Impact due to COVID19 pandemic

• Unclear timelines and social distancing restrictions push for technology driven modes to bridge the gap.
• Moratorium relief, deferred purchase and spending contraction has largely impacted the cash flow position of
HFCs.
• Gross NPA’s are expected to rise as portfolio under management is about 28% on industry average.

Source: PWC and Assocham India

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 INDIABULLS HOUSING FINANCE

BUSINESS MODEL
Company Verticals
• Focus on prime, mid-income customer segment with steadily rising disposable income.
• The company was among the first housing finance companies to launch a digital home loans platform.
• Loans against property are underwritten on a cash-flow based appraisal model and all the incremental LAP
loans are graded by CRISIL.
• The retail business model consists of 60% housing loans and 40% loans against property.
• The company has 600 institutional partners which include, 18 PSU banks, 16 private and foreign banks and
563 mutual funds, provident funds, pension funds, insurance companies and corporates.

New Asset Lite Business Model

• Books will now compromise of 90% granular loans.
• The company plans to reduce developer loans and primarily focus on retail loans in the future.
• Retail Loan Business Model:
a) Portfolio Mixture: 60% housing loans and 40% loans against property.

Particulars Proportion of Origination On-Balance Sheet Retention

Co-Origination 40% 8%
Sell Down 40% 4%
Onward Lending 20% 20%
Total 100% 32%

• In Developer Loan Model, only 20% of loan would be retained on the company’s balance sheet. The yield
under the same for the company is 18.0% whereas cost of funds is 8.8%.
• The company and the bank would charge different rates linked to their respective benchmarks on their
respective portion of loans
• Under co-origination model the company’s revenues would include:
a) Spread on their portion of loan.
b) All processing fees charged to the customer.
c) Origination fee paid by the bank.
• The company’s expenses would include:
a) All sourcing and service expenses.
b) Credit costs for its portion of the loan.
• Details on the revenue model:

Particulars Co-origination Sell Down Onward Lending

HL LAP HL LAP HL LAP
Yield 9.75% 11.75% 9.60% 12.33% 9.60% 12.33%
Sell Down Rate 9.00% 9.40% 8.65% 9.60% 9.00% 9.00%
Spread 0.75% 2.35% 0.95% 2.73% 0.60% 3.33%
Processing fees 1.30% 5.60% 0.06% 5.80% 0.06% 0.6%
Sourcing Expenses -1.90% -6.00% -3.90% -12.00% -0.40% -1.20%
*HL: housing loans and LAP: loans against property

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Branch Network Model

Smart City Master Service

Service Centres Branches Head Office
Branches Centres

• Technology • Customer • Walk in • Regional credit • Core credit

enabled with Interaction and branches hub committee
sales staff only service delivery • Customer • Detailed credit • Loans above
• Online loan • Recommendatio interaction and analysis pre-defined
application file n of proposals service delivery • Underwriting of limits go to the
completion • No credit • Credit authority high value committee
• Underwriting at authority for low ticket cases
credit centers. sizes

e-Home Loan Model

Automated Credit
Verification Disbursement Servicing
Decisioning

• Parallel reports • Auto credit decision
triggered: property based on:
legal and technical • Credit History from
checks. credit bureaus
• Field Verification • Bank statement
• All reports and analysis
tracking on • Deduplication
application.
• Business Rule engine
for scoring
• Integration with • 65% of the service
sponsor banks for requests are instantly
direct and instant resolved on social
disbursement. media and multiple
• Instant digital customer touch point.
insurance certificate. • Remind and follow up
• service to meet
Digital mandate for
auto debit of monthly builder payment
demand.
installments.

PAGE | 08
 INDIABULLS HOUSING FINANCE

FINANCIAL TRENDS
Revenue and Net Worth Revenue and Income Growth
20,000 20,000

16,000 16,000

Rs. in crore
Rs. in crores

12,000 12,000

8,000 8,000

4,000
4,000
0
0 2017 2018 2019 2020
2017 2018 2019 2020
Revenue Profit
Revenue Equity

Revenue, PAT and CFO PBT and PAT Margin

30,000 40%

20,000
30%
10,000
Rs. in crore

20%
0
2017 2018 2019 2020
-10,000 10%

-20,000
0%
-30,000 2017 2018 2019 2020

Revenue PAT CFO PBT Margin PAT Margin

Net Interest Income and Margin Return on Equity and Assets

9000 10% 40%

7500 8%
30%
Rs. in crore

6000
6%
4500 20%
4%
3000

1500 2% 10%

0 0%
2017 2018 2019 2020 0%
2017 2018 2019 2020
Net Interest Net Interest Margin
ROE ROA

Capital Structure Shareholding Pattern

100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0%
2017 2018 2019 2020 2017 2018 2019 2020

Debt Equity Promoter FIIs/FPIs LIC Others

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 INDIABULLS HOUSING FINANCE

FINANCIAL HIGHLIGHTS
Liability Profile and Funding Mixture

Particulars 2017 2018 2019 2020

Amount (Rs in crore)
Debentures (NCD) 35,257.56 46,291.63 44,065.61 32,617.01
Loans from Banks 32,140.60 38,559.00 41,023.39 32,028.84
Commercial Paper 10,805.00 14,750.00 5,330.00 -
Subordinate Debt 2,016.59 4,568.11 4,673.34 4,687.46
Total 80,219.75 104,168.74 95,092.34 69,333.31

• The capital of the company is funded by debt by approximately 80% of which 40% on average is funded by
non-convertible debentures. (Note: Debt is also a raw material for a financial service firm)
• As of 31st March 2020, the company has a securitization liability of 3400 crore compared to the previous year
that of 770 crores. The management expects the same to increase due to the new business model with more
encouragement towards selling down loans.
• Commercial Papers have been totally relinquished from liabilities with an aim of improving asset liability
management.

Major Non-Convertible Debentures

Rate Redeemable on Face Value Amount

(Rs, otherwise mentioned) (Rs in crore)
8.43% February 22, 2028 1,000,000 3,059.01
6.38% May 28, 2022 $ 1,000 2,662.78
8.75% September 26, 2021 1,000 2,857.34
11.00% August 29, 2023 1,000,000 998.61

• The US dollar bond due in 2022, has been fully hedged. All external borrowings and dollar bonds are hedged.
• During the year, the company has bought back NCD’s having face value of 8316.73 crores INR, thereby
earning a profit of 320.83 crore.

Loan Mixture

Particulars 2018 2019 2020

Amount (Rs in crore)
Housing 85,342.86 73,340.61 47,607.57
Non-Housing 24,490.60 19,046.57 22,603.87
Total 1,09,833.46 92,387.18 70,211.44

Equity
• On July 29, 2020, the company received shareholder approval for raising equity capital of up to $300 million.
The previous two QIPs took place in 2009 and 2015.
• The latest QIP is to raise Rs. 735 crores at a floor price of Rs.206.7 per share.

PAGE | 010
 INDIABULLS HOUSING FINANCE

OPERATIONAL TRENDS
Revenue Mix Loans and Employees
100% 1,20,000 10000

1,00,000
8000
95%
80,000

Rs. in crore.
6000
90% 60,000
4000
40,000
85%
2000
20,000

80% - 0
2017 2018 2019 2020 2017 2018 2019 2020

Interest Income Dividend Income Fees and commission Income Loans (Assets) Employees

Loan Quality Non Performing Assets

120000 2.00%

100000
1.60%

80000
Rs. in crore

1.20%
60000
0.80%
40000

0.40%
20000

0 0.00%
2017 2018 2019 2020 2017 2018 2019 2020

Stage 1 (Good) Stage 2 (Average) Stage 3 (NPA) Gross NPA Net NPA

ECL Allowance Profit and Asset per Employee

100%
0.48 20

80%
0.46 16

60% 0.44 12

40% 0.42 8

20% 0.4 4

0% 0.38 0
2017 2018 2019 2020 2017 2018 2019 2020

Stage 1 Stage 2 Stage 3 Profit per employee Asset Per Employee

PAGE | 011
 INDIABULLS HOUSING FINANCE

OPERATIONAL HIGHLIGHTS
Loan Book

Particulars 2017 2018 2019 2020

Amount (Rs in crore)
Stage 1 (Good) 77,272.84 95,364.90 86,115.18 48,751.57
Stage 2 (Average) 4,165.46 14,357.40 5,122.36 22,600.72
Stage 3 (NPA) 778.24 948.26 1,060.70 1,712.49
Total 82,216.54 110,670.56 92,298.24 73,064.78

• Decrease in loans in 2020 has been ascertained to increase in retail sell down under new model.
• There has been an increase in loans in Stage 2 and Stage 3 due to delay of payments, reduction of collateral
and primarily due to moratorium. The same has also led to an increase in ECL allowance.
• As of July 2020, 16% of retail loan customers have availed moratorium after reaching a peak of 35% in May
and about 70% of developer loans are seeking for moratorium.
• The company plans to reduce in developer loans and primarily focus on retail loans in the future.
• Mixture of security in loan book with major increase in unsecured loans in the year 2020:
Particulars 2017 2018 2019 2020

Secured 99.78% 99.84% 99.64% 94.50%

Unsecured 0.22% 0.16% 0.36% 5.50%

• The massive increase in unsecured loans in 2020 from 339 crores to 4000 crores is cited due to
reclassification of loans under the security creation work. Further, loans worth 1000 crores have been due to
personal loans acquired in order to diversify from housing finance business as a preparation for merger with
Lakshmi Vilas Bank. Perhaps, these personal loans have continued to do well.

Loan Profile

Particulars Average Loan Size Average LTV Maximum LTV Average Loan Term

Mid Income Affordable Housing 24 lakhs 73% 80% 15 years

Smart City Home Loan 15 lakhs NA 80% NA
Loan Against Property 73 lakhs 49% 65% 7 years
Smart City LAP 25 lakhs 40% 55% 5 years

Human Resource
• The employee strength has reduced to 5407 in 2020 from 8676 in 2019. No incremental and replacement
hiring until September 2020. Most hiring expected to happen only in 2022.
• All branch expansion plans and non-operating expenses including advertising have also been put on hold for
the time period.

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 INDIABULLS HOUSING FINANCE

INCOME STATEMENT
Particulars 2018 2019 2020
Amount (Rs in Crore)
Revenue 14,951.38 17,019.62 13,216.44
Other Income 7.31 7.42 6.79
Total Income 14,958.69 17,027.04 13,223.23
Operating and Finance Expenses 10,043.74 11,380.31 10,554.50
EBTDA 4,914.95 5,646.73 2,668.73
Depreciation, amortization and impairment 37.05 42.75 107.84
Profit before tax 4,877.90 5,603.98 2,560.89
Total Tax Expense 1,004.57 1,546.19 394.97
Profit for the year 3,873.33 4,057.79 2,165.92
Share in Profit of Associate 22.07 32.74 33.88
Profit for the year attributable to Minority Interest 3,895.40 4,090.53 2,199.80
Other Comprehensive Profit -39.81 -5.34 -364.67
Total Comprehensive Income for the Year 3,855.59 4,085.19 1,835.13

Revenue
• Interest on deposit with banks has increased in 2020 by more than fivefold as the company has tried to
improve its liquidity with more than adequate cash in hand.
• In the coming years, income from interest is expected to reduce and income from fees would drastically
increase due to new asset light model.
• Dividend Income from mutual funds and investments have increased by 83% in FY20, though total
investments have reduced by 40%.
• The company has received a nominal amount of around 500 crores every year through advisory fees and
commission on insurance provided.
• The company has also gained in brackets of 300-500 crores through derecognition of financial instruments
over the years.

Expenses
• The operating and finance expenses have remained at the same levels over the last three years and haven’t
seen any significant increase or decrease.

Associate
• In 2015, the company had invested Rs. 663 crores, in UK bank OakNorth Bank acquiring a controlling stake of
39.76%. The holding has now reduced to less than 15% and is an investment.
• 10% of the stake was previously sold for 770 crores and another portion (not specified) recently for 440 crores.
• The divestments have taken place with an aim to boost CRAR

Taxes
• In FY2019, tax rate increased from 11.7% to 29.9% on account of one-time redemptions in historical
investments.
• The effective applicable corporate tax rate for the company is now 25.17% as that of previous year at 34.94%.

PAGE | 013
 INDIABULLS HOUSING FINANCE

BALANCE SHEET
Particulars 2018 2019 2020
Amount (Rs in Crore)
Financial Assets 1,30,537.06 1,28,475.84 99,716.40
Non-Financial Assets 2,065.68 1,628.08 3,155.63
Total Assets 1,32,602.74 1,30,103.92 1,02,872.03
Financial Liabilities 1,17,530.73 1,12,713.59 86,447.19
Non-Financial Liabilities 713.82 908.21 887.19
Total Liabilities 1,18,958.37 1,14,530.01 88,221.57
Equity share capital 85.31 85.48 83.83
Other Equity 14,272.88 16,396.64 15,453.82
Total Equity 14,358.19 16,482.12 15,537.65

Financial Assets
• Cash and bank balance increased by almost 200% in FY19 and have remained at the same level in FY20. The
same has been achieved in order to improve liquidity and stay above par. A portion of the balance has been
held as security against borrowings and margin money.
• In Nov 2019, the company had a liquidity coverage of about 700%.
• Derivative financial instruments have been growing at a CAGR of 127% over the last 4 years. The primary
risks managed are interest rate risk and foreign currency risk.
• The Group is exposed to interest rate risk arising from its foreign currency borrowings amounting to almost
$717 million in FY20. The Interest on the borrowing is payable at a floating rate.
• The Group uses IRS instruments to convert a proportion of its fixed rate debt to floating rates in order to hedge
the interest rate risk arising, principally, from issue of non-convertible debentures.
• The company has constantly been reducing its mutual fund investments as a whole over the years whereas
holdings in equity instrument in FY20 has increased to 2900 crore from 14 crore in FY19 i.e. through OCI.
• Debt securities also reduced half as compared to 9000 crores in FY19.

Non-Financial Assets
• Non-financial assets have formed only 2-3% of total assets over the years, and there have not been any major
variations in the same.

Financial Liabilities
• The company’s liability towards interest rate swaps has increased to 187 crores from 57 crore, perhaps turned
nil for forward contracts and currency swaps.
• Debentures and Borrowings from banks make up for 70-80% of liability of the company (the same has been
detailed under financial highlights)

PAGE | 014
 INDIABULLS HOUSING FINANCE

CASH FLOW STATEMENT

Particulars 2018 2019 2020
Amount (Rs in Crore)
Profit before tax 4,877.90 5,603.98 2,560.89
Adjustments -4,652.15 -5,735.09 -2,668.06
Operating profit/loss before working capital changes 225.75 -131.11 -107.17
Working capital changes -28,570.10 17,326.95 17,483.76
Interest received on loans 12,361.19 14,958.45 11,137.72
Interest paid on borrowings -7,965.49 -9,519.41 -8,777.58
Income taxes paid -1,074.92 -1,428.87 -405.68
Net cash flow from operating activities -25,023.57 21,206.01 19,331.05
Investments in mutual funds and other investments -1,669.67 -4,851.52 8,277.77
Dividend and interest received 1,666.10 835.23 1,455.82
Other investing cash flows 371.21 -204.18 -1,468.65
Net cash flow from investing activities 367.64 -4,220.47 8,264.94
Proceeds from Term loans 11,110.32 1,584.25 -11,375.88
Net proceeds from issue of Secured Redeemable Non-Convertible 11,035.72 -2,225.61 -11,439.48
Debentures
Other financing cash flows 1,628.54 -6,693.74 -5,118.86
Net cash flow from financing activities 23,774.58 -7,335.10 -27,934.22
Net change in cash and cash equivalents -881.35 9,650.44 -338.23

Operating Activities
• Net cash from operating activities has significantly improved over the last two years after a negative cash flow
in FY17 and FY18.
• The cash flow in FY19 was almost 4 times that of net profit whereas in FY20 it has been 7.5 times of the net
profit.
• The company expects to maintain the same healthy cash flows in the future as it has increased focus on
maintaining more than required liquidity.
• The change in cash flows can be ascertained majorly to inflows due to loan assets by around 17,000 crore
which remained negative in the years before.
• The company has constantly received more than 95% of the interest accrued through cash.

Investing Activities
• Positive cash flow in investing activities are majorly due to reduction of mutual fund and debt fund investments
whereas investments in deposit accounts and other equity instruments have increased.
• The company has constantly received all of accrued dividend income in cash.

Financing Activities
• The huge negative cash flow by financing activities is due to outflow by term loans and non-convertible
debentures by approximately 11,000 crores each.
• The company has declared a dividend of Rs.31 for the FY20, whereas that of Rs.40 and Rs.41 in FY19 and
FY18. The dividend payout policy of the company stands at 50%.
• The company paused on its dividend payment in Q1 of FY20, perhaps assures that the dividend payment
policy shall continue to remain an integral part and will resume soon.

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 INDIABULLS HOUSING FINANCE

RATIO ANALYSIS
Profitability Ratios
Measure FY17 FY18 FY19 FY20
Basic Earnings Per Share 68.80 91.64 95.83 51.70
Diluted Earnings Per Share 67.98 90.55 95.26 51.69
Gross Margin NA 38.9% 39.5% 27.6%
EBTDA Margin 36.12% 32.9% 33.2% 20.2%
PBT Margin 35.93% 32.6% 32.9% 19.4%
PAT Margin 27.72% 25.9% 23.8% 16.4%
TCI Margin NA 25.8% 24.0% 13.9%

• The massive dip in earnings per share in FY20 is attributed to reduction in profit available for shareholders by
almost 50%.
• Gross margins have reduced as finance costs have remained the same over the years perhaps revenue from
operations has reduced by 22%.
• In FY20, expenses have reduced only by 7%, though revenue decreased by 22%. The same has been
reflected in the ratios. Furthermore, depreciation and impairment as an expense have increased by almost
150%.
• The company’s bottom line is expected to remain low over the next few years as the focus has shifted from
profitability to improving asset quality.

Efficiency Ratios
Measure FY17 FY18 FY19 FY20
Return on Equity 26.12% 30.10% 24.32% 17.60%
Return on Assets 3.60% 3.30% 3.00% 1.90%
Asset Turnover 10.18% 11.28% 13.08% 12.85%
Cost of Borrowings 7.40% 6.89% 8.89% 10.19%
Efficiency Ratio (Non-Interest Expense/Revenue) NA 6.36% 6.58% 8.23%
Operating Leverage NA (base) -3.96% -19.46%
Cost to Income 13.30% 12.50% 12.70% 16.20%

• The company expects return on equity during initial model ramp up phase to remain between 14% to 18%. It
has targeted to reach ROE of 25% by 2024.
• The ROA can be expected to increase over the years as onward lending which provides a ROA of just 0.9% is
being reduced to 20% of lending, whereas sell down which could provide a ROA of 12% is to form 40% of the
lending.
• There has not been increase in any non-interest expenses except that of depreciation and impairment.
• The company’s non-interest expenses have been growing faster than its revenue over the last 2 years by the
percentage as stated under operating leverage.

Note: Few figures for FY17 have not been calculated to avoid any variations due to accounting policy changes which took place in the
further years and statements for the same had not been represented.

PAGE | 016
Operational Ratios
Measure FY17 FY18 FY19 FY20
Net Interest Margin 5.86% 6.33% 7.90% 6.71%
Interest Spread NA 2.88% 3.93% 3.03%
Capital Adequacy 20.91% 20.82% 26.49% 27.09%
Provision for Credit Losses 1.85% 1.56% 1.09% 5.05%

• Fall in net interest margin as net interest income during the period fell by almost 2500 crores compared to that
of previous year.
• The company has maintained a good capital adequacy ratio over the years, the same under tier 1 capital is
20.31% and tier 2 capital is 6.78% in FY20.
• In FY19 tier 1 capital adequacy stood at 19.81% and tier 2 stood at 6.68%.
• The company has increased its ECL allowance by 364% compared to that of previous year due to major
increase in stage 2 loans.

Solvency Ratios
Measure FY17 FY18 FY19 FY20
Debt /Equity 6.86 7.68 6.37 4.89
Debt /Capital 0.87 0.88 0.86 0.83
Debt /Assets 0.83 0.83 0.81 0.74
Loan to Asset 79.0% 82.8% 71.0% 68.3%

• The company has reduced its reliance on debt securities over the years by 10% CAGR for 4 years. In the
previous two years the same reduced by 19% and 33% compared to that of previous year respectively.
• The company has one of the best debt to equity ratio compared to that of its industry peers who stand
between 5.0x to 10.0x.
• The company aims to achieve a leverage of 1:5 by 2024.

PAGE | 017
 INDIABULLS HOUSING FINANCE

RISK RETURN ANALYSIS

The following statistics have been calculated on rolling returns from July 23, 2013 to August 6, 2020

Risk Return Analysis

1 year 3 years 5 years
Nifty Fin Nifty Fin Nifty Fin
Measure IBHFC BSE200 IBHFC BSE200 IBHFC BSE200
Services Services Services
Mean Return 27.34% 11.04% 17.95% 121.45% 35.63% 58.51% 174.97% 58.71% 104.67%
SD 69.71% 16.19% 21.92% 159.03% 16.21% 24.12% 253.47% 31.38% 44.49%
Annual mean return 27.34% 11.04% 17.95% 30.34% 10.69% 16.60% 22.42% 9.68% 15.40%
Annual SD 69.71% 16.19% 21.92% 37.34% 5.14% 7.47% 28.73% 5.61% 7.64%
Max return 264.71% 53.61% 88.55% 471.42% 77.12% 114.00% 865.27% 136.87% 215.18%
Min return -88.97% -34.24% -35.99% -89.32% -19.52% -9.03% -79.46% -9.30% 9.34%
Correlation 0.75856 0.66789 0.61436 0.26525 0.93792 0.86900
Covariance 0.08559 0.10204 0.15841 0.10174 0.74609 0.97994
Beta 0.17613 0.21000 0.06264 0.04023 0.11612 0.15252
Return / SD 39.22% 68.18% 81.89% 81.28% 208.17% 222.24% 78.05% 172.50% 201.63%
Median return 22.19% 10.20% 17.85% 96.36% 36.63% 59.19% 92.86% 50.74% 105.18%

3 3
1 Year Rolling Returns Distribution 3 Year Rolling Returns Distribution

2.5 2.5

2 2

1.5 IBULHSGFIN 1.5 IBULHSGFIN

BSE200 BSE200
1 Nifty Financial 1 Nifty Financial

0.5 0.5

0 0
-100.00% 0.00% 100.00% 200.00% 300.00% -100.00% 0.00% 100.00% 200.00% 300.00% 400.00% 500.00%

1.4 5 Year Rolling Returns Distribution

1.2

1
IBULHSGFIN
0.8 BSE200
Nifty Financial
0.6

0.4

0.2

0
-200.00% 0.00% 200.00% 400.00% 600.00% 800.00%

PAGE | 018
 INDIABULLS HOUSING FINANCE

VALUATIONS
Dividend Discount Valuation

Intrinsic Valuation Inputs

Date of Valuation 08-Sep-20

Growth Period (8 years) Stable Period
Growth Rate 6.30% Growth Rate 3%
Cost of Equity 15.22% Cost of Equity 12.52%
Pay-out ratio 55.00% Pay-out Ratio 75.00%
Beta 1.42 Beta 1.10
Other Inputs
Adjusted Risk Free Rate 3.21%
Equity Risk Premium 8.46%

Dividend Discount Valuation

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28

Growth Rate 6.30% 6.30% 6.30% 6.30% 5.48% 4.65% 3.83% 3.00%
Earnings Per Share ₹ 54.96 ₹ 58.42 ₹ 62.10 ₹ 66.01 ₹ 69.63 ₹ 72.86 ₹ 75.65 ₹ 77.92
Payout Ratio 55.00% 55.00% 55.00% 55.00% 60.00% 65.00% 70.00% 75.00%
Dividends Per Share ₹ 30.23 ₹ 32.13 ₹ 34.15 ₹ 36.31 ₹ 41.78 ₹ 47.36 ₹ 52.96 ₹ 58.44
Cost of Equity 15.22% 15.22% 15.22% 15.22% 14.55% 13.87% 13.19% 12.52%
Cumulative COE 115.22% 132.76% 152.97% 176.26% 201.90% 229.91% 260.24% 292.81%

Present Value ₹ 26.23 ₹ 24.20 ₹ 22.33 ₹ 20.60 ₹ 20.69 ₹ 20.60 ₹ 20.35 ₹ 19.96

Valuation Output

Price at End of Growth Phase ₹ 632.55

Present Value of Growth Phase ₹ 174.96
Present Value of Terminal Price ₹ 216.03
Estimated Value of the Share ₹ 390.99
Current Market Price of the Share ₹ 204.10
Undervaluation ₹ 186.89

Notes:
• The earnings have not been averaged as the company has adopted a new model, and the growth would be
steady.
• The current market price is as on September 8, 2020.

PAGE | 019
 INDIABULLS HOUSING FINANCE

REFERENCES & CONTACT

Primary Sources

• Annual Reports (FY17 to FY20)

• Investor Presentations (FY17 to Q1FY21)
• Conference Call Transcripts (FY17 to Q1FY21)
• Financial Reports (FY17 to FY20)

Additional Sources

• Company Website
• Yahoo Finance
• NSE website
• BSE website
• Economic Times

Analyst

Tushar Mandhana
mandhanatushar04@gmail.com

PAGE | 020