indiabulls financial services ltd

7/29/2019 Indiabulls Financial Services Ltd

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Indiabulls Financial Services Ltd (IBFSL) –

Buy the Transformation

For more information on Indiabulls and the opportunity in it, feel free to discuss with Gokul Raj. P

Mail Id : [email protected] Mobile: +91-9994577745

Our key objective is to pick stocks which can compound sustainably at a healthy

rate for the next 3-5 years and create wealth. We like to select companies with strong

competitive advantages and are quoting at a discount to their intrinsic value.

Our key objective is to pick stocks which can compound sustainably at a healthy

rate for the next 3-5 years and create wealth. We like to select companies with strong

competitive advantages and are quoting at a discount to their intrinsic value.



Content Index

• Housing Finance – Industry Overview :- Slide #5

• Housing Finance – Strong industry dynamics :- Slide #10

• IBFSL – Business Overview :- Slide #14

•Investment Rationale :- Slide #21

Institutional Services

• Earnings Projection :- Slide #30

• Management :- Slide #32

• Conclusion :- Slide #34



IBFSL – Investment Snapshot (As on June 24, 2011)

Recommendation :- BUY

Target Price range :- 400

Investment Period :- 2 Years

Current Market Price – Rs. 153.95

Bloomberg / Reuters Code – IBULL IN / IBUL.BO

BSE / NSE Code – 532544 / INDIABULLS

Mkt Cap (INR BN / USD Bn) – 47.9 / 1.071 USD – Rs. 44.8

• Indiabulls Financial Services Ltd (IBFSL) is one of the largest

Non Banking Financial companies in India engaged in the

business of providing Housing Loans, Loan against Property

and Commercial Vehicle Finance.

• The company was incorporated in Jan 2000 as Orbis Infotech

Private Ltd and the name was changed to Indiabulls Financial

Services Private Ltd in Mar 2001. In Feb 2004, the company

was converted into public limited company and the name was

changed to Indiabulls Financial Services Ltd.

• IBFSL has been one of the fastest growing Financial servicescompany in India over the last decade. In just 10 years of


Total Equity Shares [Mn]– 310.9

Face Value – Rs. 2

52 Week High / Low – Rs. 240.70 / Rs. 133.75

Promoter’s Holding – 32.33%

FII’s Holding – 32.57%

operation, the company has grown its AUM to 4.5 billion USD

currently. Most of the growth that the company witnessed

until 2008 – 09 was on back of high levels of unsecured

lending and aggressive financing practices.

• However, with the company gaining experience, size and a

strong foothold in Housing finance segment, it is currently in

a transitional phase, which will make it a more matured and

focused lender and take it to the next level of opportunities.

• For FY 11, the company reported Dividend per share of Rs.

10 out of the EPS of Rs. 23.8 and we see this as a clear

indication of the business making tons of cash.



Key Investment Highlights

Robust Housing finance segment – Housing finance industry is deeply under penetrated in India with 7%contribution to the country’s GDP as against 12% for China. A peer group comparison in Asia reveals that India hasone of the lowest mortgage to GDP ratio. It is expected that the share of housing in GDP would go up substantially

in the coming years. The share of outstanding housing loan as a percentage of GDP has risen from 3.4% in 2001 to7% currently.

Transformation into a Focused mortgage lender – Over the last 3 years time period, the company has beenundergoing a transformation, wherein it is moving from being a high risk unsecured lender to being a more maturedand focused player on mortgage loans. The company has been clearly exiting the highly volatile business segmentslike personal loans and auto loans and has been concentrating on building a long term and stable asset portfolio.We believe that this transformation will serve as the base for the company to achieve the next level of growth andopportunities.


Improving Asset and Liability profile – The Asset profile of the company has improved significantly over the last 3years. The Secured lending % of the total lending has gone up from 72% in FY 08 to 98% in FY 11. Today, mortgagescontributed to 71% of the total assets compared to less than 45% 3 years back.

In accordance to the changing asset profile and the business focus, the company has been able to modify its liability

profile from short term oriented to long term oriented and stable sources.

Low gearing support strong growth without equity infusion – The gearing ratio at 3.13 times is lower whencompared to other listed peers. Most of the peers in the housing finance segment have a gearing ratio of more than7. This makes IBFSL as one of the better capitalized NBFC s with a very strong balance sheet. The low gearing levelswill allow the company to grow for at least another 2 years without any need for equity infusion.



Housing Finance – Industry Overview




Indian Financial Services Sector

• There has been a considerable broadening and deepening of the Indian financial markets due to various financial market

reforms undertaken by the regulators, the introduction of innovative financial instruments in the recent years and the entry

of sophisticated domestic and international players.

• Sectors such as banking, insurance, asset management and brokerage have been liberalised to allow private sector

involvement, which has contributed to the development and modernization of the financial services sector.

• This is particularly evident in the non-banking financial services sector, such as equities, derivatives and commodities

brokerage, residential mortgage and insurance services, where new products and expanding delivery channels have helped

these sectors achieve high growth rates.

• Additionally, India has a large and rapidly growing middle class with increasing levels of discretionary income available for


. ,

credit in India has correspondingly increased.

• The last five years have seen not only a great expansion of the Indian economy but also a great expansion of consumer

lending.

• Previously, Indian consumers were averse to the concept of using credit to fund purchases and preferred to save prior tospending. Today, with a variety of consumer credit products being widely available, we believe Indian consumers are

more willing to acquire assets through borrowing.



Indian Consumer Credit market

• The consumer credit market in India has undergone a significant transformation over the last decade and experienced

38%

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22%

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0%

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40%

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100%

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E

( i n %

)

Financial year

Credit growth


rapid growth due to consumer credit becoming cheaper, more widely available and increasingly a more acceptable avenue

of funding for consumers.

• Credit availability, affordability and consumer confidence are the key drivers for consumer loan growth. Through the

fiscal years 2002 to 2007, the Indian consumer market had experienced over 20% growth year-on-year in consumer loans.

• Although the growth slowed in fiscal year 2008 due to the unfolding of the global credit crisis, slowing of the economy and

rising interest rates in early 2008, India continues to provide opportunities for the growth of consumer credit due to the rise

of the Indian middle class.

• In addition, the younger population not only has more purchasing power, but also is more open to acquire personal

debt than previous generations. Improving consumer purchasing power will continue to contribute to the growth of

India‘s consumer credit market.



Upside for Consumer credit is huge


• Despite high loan growth in consumer financing, it remains an underpenetrated market. We believe demand for consumer

loans will increase going forward in view of household gearing remaining low and disposable income continues to rise rapidly.

• The market has changed dramatically due to the following factors –

Increased focus by banks and financial institutions on consumer credit resulting in a market shift towards regulated playersfrom unregulated moneylenders/financiers

Increasing desire by customers to acquire assets such as cars, goods and houses on credit;

Fast emerging middle class and growing number of households in our target segment;

Improved terms of credit as interest rates in India fall into line with global interest rates and further reduced interest rates for

sophisticated products;

Legislative changes that offer greater protection to lenders against fraud and potential default increasing the incentive to

lend.



Housing Finance sector in India

• India‘s robust economic growth and the resultant increase in incomes are speeding up the pace of urbanisation. This,

along with the increasing availability of housing finance, has led to a housing boom in the past few years.

•

The housing shortage, however, continues to remain acute and as per the estimate of the Technical Committeeconstituted by the Ministry of Housing and Urban Poverty Alleviation, the total housing shortage in urban India at the

end of the 10th Five Year Plan (2002 - 2007) is estimated at 24.71 million dwelling units and this will further go up to

26.53 million dwelling units by the end of the 11th Five Year Plan (2007 - 2012).

• Driven by low interest rates and economic growth, the Indian housing market boomed over 2006 and 2007 and the

total home loan approvals and disbursements increased significantly over the last few years.

• According to the National Housing Bank, annual housing loans disbursed by NBFCs increased from Rs. 32.9 billion in


sca o s. . on n sca represen ng a compoun annua grow ra e, or , o per cen .

• Total loans outstanding increased from Rs. 82.8 billion to Rs. 176.7 billion for the same period at a CAGR of 21 per

cent. Improved tax rebates on home loans, lowering of real estate prices to affordable levels and slashing of interest

rates on home loans have resulted in growth of this sector.

• The weakened economic situation in 2008 led to a simultaneous weakening in mortgages as consumers refused to

make large financial commitment in the face of a global economic crisis. However, as per a report by the Housing

Development Finance Corporation, homebuyers are once again coming into the markets in larger numbers.



Housing Finance – Strong industry dynamics




Low mortgage penetration provides significant upside

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Denmark USA UK Germany Hongkong Taiwan Singapore Malaysia Korea Thailand China India

( i n % )

Housing Loan as a % of GDP


• Housing finance industry is deeply under penetrated in India with 7% contribution to the country’s GDP as against

12% for China.

• A peer group comparison in Asia reveals that India has one of the lowest mortgage to GDP ratio. It is expected that

the share of housing in GDP would go up substantially in the coming years.

• The share of outstanding housing loan as a percentage of GDP has risen from 3.4% in 2001 to 7% currently.

Housing Loan as a % of GDP



Population growth and Housing shortage


• India’s population is estimated to grow to 1.2 bn by 2012E from 1.1 bn at present. The biggest increase is expected to be

within the 24-54 years age group. Consequently, India’s working population will increase which will propel housing demand.

•There is an acute shortage of housing supply in the country especially in the mid income and low-income categories.

Housing supply has been mainly concentrated towards the premium category, resulting in a shortage of affordable housing.

• According to the estimates made by the Ministry of Housing and Urban Poverty Alleviation for assessment of the urban

housing shortage at the end of the 10th Five Year Plan, the total housing shortage in the country is 24.71 mn units.

• Housing shortage is likely to go up to 26.53 mn units during the 11th Five Year Plan i.e. 2007-2012E



Urbanization and increasing affordability


• Growing employment opportunities in the urban areas has been the key trigger behind the migration of workforce from

rural areas to urban areas. The growth in India’s urban population is more than twice the growth in the rural population.

• The urban population has increased steadily in the past and accounted for approximately 28% of the total population in

2006 and is expected to account for approximately 32% of the total population by 2012E. Thus, with increasing

urbanisation, housing demand (on a per household basis) is expected to increase going forward.

• Urban & rural household with annual incomes exceeding `0.5 mn are expected to grow by 12% & 7% respectively in the

next 5 years. The growth rate, though comparatively lower than the average over the past five years, reflects an overall

increase in affluence in both urban and rural households as more families move into higher income brackets.

• The above graph shows the increase in affordability (calculated by dividing property costs by annual income) over the last

15 years.



IBFSL – Business Overview




Business Overview

Mortgage Loans


The company is primarily engaged in the following business

activities –

Mortgage Loans –

• Mortgage loans contribute to about 71% of the overall

business of the company. The entire portfolio of Mortgage loans

is secured and the company plans to grow its competitiveness in

this segment in the long term.

• The mortgage loans segment is made of Home loans and Loan

against property.

• In the home loans segment, the company offers housing loans to

salaried individuals and to self employed professionals. The

average maturity period of these loans are around 12 years.

• Home loans segment make up for 70% of the mortgage loans

business or to around 50% of the entire business of the company.

IBFSL currently provides home loans earning interest at ratesbetween 9.5% and 11%.

• Loans against property or LAP are usually provided to self

employed individuals and to Small & Medium Enterprises through

equitable mortgages upon their properties. The average maturity

period for LAP is 12 years. IBFSL currently provides LAP earning

interest at rates starting from 12%.



Business Overview

Corporate Loans – interest at rates starting from 14%.

Corporate Loans


• Corporate loans form the second largest business segment for

the company after Mortgage loans and contribute for around

21% of the overall business. Corporate loans are equally made up

of commercial credit and Loans to real estate projects.

• Commercial credits are business loans provided to Small &

Medium Enterprises, which are secured by the SMEs’ currentassets, fixed assets and immovable property. The average

maturity period is 12 months. IBFSL currently provides

Commercial credits earning interest at rates starting from 13%.

• Loans to projects are provided to real estate builders for

specific projects. These loans have a average maturity period of

12 months. IBFSL currently provides Projects loans earning

Commercial Vehicle loans –

• IBFSL provide secured financing for CV s and tractors to clients

such as small truck operators and farmers. The average maturity

for such loans is 36 months and the CV loans earn interest at rates

starting from 13%.

Business Loans –

• IBFSL offers credit lines and term loans to small business owners,

which typically are unsecured. The average maturity for such

business loans is 36 months. This is the only unsecured lending

that the company is involved in and it plans to exit this business

vertical in the near term.



Income sources


• “Interest income” contributes significantly to the overall revenues of the company. The interest income for the

company has been steadily contributing to around 90% of the company’s revenues.

•

“Fee income” is basically the Application and processing charges that the company collects for its various loanofferings. Fee income is directly dependant on the total amount of new disbursements that the company makes.

• Any recoveries from the written off assets are usually charged into the “Other income”.



Diversified borrowing program


• IBFSL has a robust and a diversified borrowing program consisting of bank loans, commercial paper and bonds.

• The company currently counts 54 strong relationship with lenders – 21 PSU banks, 11 Private and Foreign banks

and 22 other sources – Mutual funds, Provident funds, Pension funds and Insurance companies.

• IBFSL counts some of the major PSU, Private and foreign banks as its bond holders.



Strong geographic presence


•

The company continues to expand its branch network and currently has over 160 branches spread across 18 states. Thebranches are set‐up in accessible locations with the aim of nurturing long‐term customer relationships. Customers are attended

to by knowledgeable and experienced staff, trained to deliver quality service.

• Customer convenience and Superior service form the core of IBFSL’s product proposition. Home Loans from the company are

competitively priced and cater to the mass‐market salaried segment. Prospective customers are promptly attended to by a

Direct Sales Team of over 3,000 people and all pertinent information is made easily available on‐line. Specialist helpdesks are

also set‐up to address all product queries.



Positive loan mix and Strong credit ratings


• 77% of the borrowings of the company are at fixed interest rates and more than 80% of the lending is at floating interest

rate. While there is exactly no loan with a fixed interest rate, the interest rate revision is not as frequent and as fast as in a

floating interest rate loan.

• This favorable loan mix of the company puts it in a comfortable position in a rising interest rate scenario to pass on any

rise in credit cost to the customer without taking a hit on its borrowing. Going forward, the company plans to increase itsshare of the floating loans that it provides.

• IBFSL is one of the very few NBFC s with top notch ratings from all of the credit rating agencies. This is mainly due to the

strong business growth of the company with its focus on relatively safer asset class of mortgage loans.

• The company has a P1 + rating on all of its short term borrowings from CRISIL, a Standard and Poor’s company. For its

long term borrowings, the company has a rating of AA + from CARE and AA from ICRA and CRISIL.



Investment Rationale




Transformation into a focused Mortgage lender

Two wheeler loans

Loan against Shares

Commercial vehicle loans

Project loans

Share broking

Real Estate

Home loans

Loan against Property

Secured and Unsecured

Personal loans


Business loans

Project loans

Home loans



Business loans

Commercial Credit

Project loans

FY 07 FY 09 FY 11

Home loans



Project loans

FY 13 E


Home loans


Personal loans

Business loans

Commercial Credit

Commercial Credit

• The real estate business of the company was demerged into Indiabulls Real estate ltd in FY 08.

• The Securities and Stock broking business was demerged into Indiabulls Securities Ltd in FY 09.



Transformation into a focused Mortgage lender

47%58%

66%

86% 88% 90%

51% 32%22%

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FY06 FY07 FY08 FY09 FY10 FY11

Income sources

Interest Income Capital markets Fee based income

1%

68% 72%88% 91%

98%99%

32% 28%12% 9%

2%

0%

20%

40%

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80%

100%

FY06 FY07 FY08 FY09 FY10 FY11

Secured and unsecured lending

Secured Unsecured


• Over the last 3 years time period, the company has been undergoing a transformation, where it is moving from being a high risk

unsecured lender to being a more matured and focused player on mortgage loans. The company has been clearly exiting the highly

volatile business segments like personal loans and auto loans and has been concentrating on building a long term and stable asset

portfolio.

• The company has managed to grow its AUM, six times from around Rs. 3000 crore in FY 07 to more than Rs. 19,000 Crore at the end

of FY ‘11, in spite of exiting various business segments and demerging units like real estate and stock broking.

• Currently, the company is identified as a Home loan provider with a presence in CV financing and this is the way, we expect the

company to grow going forward. While the company had prior goals of becoming a secured lender, it was the financial crisis and the

liquidity crunch in 2008 which made the company rethink it’s business strategies.

• We believe that this transformation will serve as the base for the company to achieve the next level of growth and opportunities.



Improving Asset profile


• Long term and low risk mortgage loans constitute 71% of the asset book.

• The unsecured personal loan portfolio, which the company had in FY 10 was closed and the book ran off in Q2 of FY 12.

The only other unsecured lending that the company is engaged in currently is the Business loans segment and we expect

the company to exit this segment in the next 2 years time period.

• We expect the focus to be on Mortgage loans and Commercial vehicle loans going forward. We expect the CV loans to

grow in size and this segment will contribute for 10% of the total assets in the next 2 years time period.

• Going forward, the long term asset profile of the company is expected to be made of Mortgage loans for 70%, Corporate

loans for 20% and Commercial vehicle loans for 10%.



Improving Liability profile


• There has been a remarkable improvement in the liability profile of the company over the last 3 years. It can be seen from

the above that pre–crisis, the company was heavily dependant on short term borrowing like commercial paper and other

sources including Mutual funds. These short term borrowings usually demand a higher interest rate and the duration is less

than a year.

• High reliability on short term borrowing for financing long term assets will result in Asset – Liability mismatch. Taking aleaf out of the financial crisis experience and acting in accordance to the changing asset profile of the company towards

long term mortgage loans, IBFSL has done a commendable job in transforming its liability profile in just 2 to 3 years.

• The liability profile of the company today contains a majority of Bank loans (duration of 7 to 10 years) and Bonds (duration

of 3 to 5 years). Going forward, we expect more bond issues by the company taking the contribution from bonds to closer to

30%.



Robust growth in Assets

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Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 FY12E

AUM in Rs. Cr


• On the back of a strong and steady demand for Home loan products, the company has seen a sustainable growth

in its AUM over the last 4 quarters. The average growth for the last 4 quarters has been Rs. 2,200 Crore.

• We believe that the strong focus on Home loans and the aim to double the CV loan book will help the company topost a strong growth in FY 12 as well. We expect that the average AUM growth for the next 4 quarters to be in the

range of Rs. 2,200 Crore to Rs. 2,500 Crore.

• We expect around 37% growth in the AUM for FY 12 and we expect the total AUM to stand around Rs. 27,120

Crore at the end of FY 12.

AUM in Rs. Cr

d d h



Focus on mortgages to reduce NPA s and the Provisions


• As low risk mortgage portfolio increased as a part of the total AUM, the NPA s have been continuously reducing over the

last 6 quarters. Incrementally, we expect delinquencies to fall as the Asset profile becomes more long term oriented and

safer.

• As a result of the falling NPA s, the provisioning has come down significantly from Rs. 261 Crore in FY 10 to Rs. 180 Crore

in FY 11. We expect the NPA s to tend lower in FY 12, thereby resulting in lower provision expense and higher net

earnings.

• Total Provisions currently stand at 4.19 times the regulatory requirements.

h h f



Low gearing supports strong growth without equity infusion


• The gearing ratio at 3.13 times is lower when compared to other listed peers. Most of the peers in the housing finance

segment have a gearing ratio of more than 7. This makes IBFSL as one of the better capitalized NBFC s with a very strong

balance sheet.

• The low gearing levels will allow the company to grow for at least another 2 years without any need for equity infusion.

A i l i



Attractive valuationsBusiness &

Type

Mcap

(in Cr)

FY 11

revenues

(in Cr)

FY 11

earnings

(in Cr)

FY 12E

earnings

growth

AUM

(in Cr)

P/B ROA

(in %)

ROE

(in%)

P/E F

(1 Yr)

Shriram Transport

Finance

NBFC – CV

finance

13,569 5,341 1,217 15% 36,000 2.77 4.3 28 9.6

LIC Housing

Finance

HFC –

Home loans

10,781 4,866 974 18% 51,090 2.59 2.2 26 9.3

Mahindra Finance NBFC – CV

Finance

6,419 2,043 492 25% 12,669 2.52 4.2 19 10.4

IBFSL NBFC –

Home loans

4,795 2,509 742 27% 19,796 1.05 4.1 17 5.0


• IBFSL being a diversified lender with a major focus on Home loans (70% of Assets) does not have a strict peer. However, shown

above are the closer peers operating in Home loans and CV financing segments, with which a reasonable comparison can be made.

• It can be seen from the above that IBFSL, in spite of having a strong ROA is trading at a significant discount to its peers. The P/B of

close to 1 is very cheap and provides an attractive investment opportunity.

• The return ratios on equity is lower when compared to other peers mainly due to the lower leverage of the company. As the

leverage goes up over the next 1 to 2 years, we expect ROE to cross 20% in FY 12.

• Taking the strong growth prospects and higher ROA into account, we believe that IBFSL should easily command a P/B of at least

1.5 and P/E ratio of at least 8 on the FY 12E earnings.

ewan ous ng –

Home loans

, , , . . .



Management


l



Management – Key PeopleMr Sameer Gehlaut, Chairman - IBFSL

Mr. Sameer Gehlaut has been the Chairman since February

27, 2004 and was appointed to the Board of Directors on

January 10, 2000.

Mr. Gehlaut graduated with a degree Mechanical

engineering from the Indian Institute of Technology, Delhi.

He is also the co-founder and Chairman of the Indiabulls

group of companies engaged in the business of real estate,

infrastructure, financial services and power sector.

Asia Money had named Mr. Gehlaut as one of the 100 most

over five years before he co-founded Indiabulls group of

companies.

Mr. Rajiv Rattan has vast work experience in the field of

financial services, real estate, power and infrastructuresector businesses.

Mr. Saurabh K. Mittal , Director – IBFSL

Mr. Saurabh Mittal has been a director since January 10,

2000. He is also a co-founder of Indiabulls group of

companies.


influential persons in business across Asia-Pacific in the

fiscal year 2007-08.

Mr Rajiv Rattan, VC - IBFSL

Mr. Rajiv Rattan is the Vice-Chairman and has been a director

since January 10, 2000. He is the co-founder and ViceChairman of the Indiabulls group of companies.

Mr. Rajiv Rattan graduated with a degree in electrical

engineering from the Indian Institute of Technology, Delhi in

the year 1994. He was selected by Schlumberger for its

international services business in 1994, where he worked for

Mr. Mittal graduated with a degree in Electric Engineering

from the Indian Institute of Technology, Delhi and also hold

masters in business administration from Harvard Business

School, where he was elected Baker Scholar.

Mr. Saurabh K. Mittal , Director – IBFSL

Mr. Gagan Banga has been an executive director since March

30, 2005. He was appointed as our Chief Executive Officer on

December 24, 2007. Mr. Banga holds a masters degree in

Business Administration. He worked at NIIT as Regional Sales

Head.

Investors



Investors


• The promoters have increased their stake

significantly over the last 1 year.

• IBFSL has more than 140 FII investors and

some of the larger names include LNM IndiaInternet Ventures (LN Mittal’s fund), Citigroup

and Morgan Stanley.

• HSBC is the largest non promoter entity in

the company with a huge holding of 7.46%.



Conclusion


P i h t



Price charts


• Shown above is the 1 year price chart of IBFSL. The charts suggest that there is a very strong support at 130 levels,which has been successfully tested several times over the last 1 year. We believe that the downside is highly cappedat 130 levels.

• On the upper side, though what we see is 240, which is the 1 year highs, it should be noted that IBFSL quoted atRs. 1000 in Jan 2008 before the market crash, on back of higher valuation and very high double digit growth rates.

• We believe that at the current levels, the downside seems to be capped and very low and the upside potentialfor the counter is significant. It looks even more better, taking the dividend yield of more than 6% intoconsideration. Hence we believe that a substantial investment can be made safely at the current levels.



Conclusion

We believe that the dynamics of the housing finance sector is strong and large, which augers well for the growth of Indiabulls Financial Services Ltd. Take the case of HDFC Ltd, the largest player in the Housing finance segment for example. Ithas a loan book of more than 25 billion USD (more than 5 times that of IBFSL) and a market cap of 22 billion USD (22

times that of IBFSL). Simply, the market size and the business potential on the upside is huge.

IBFSL, which was started in 2000, with highly talented and educated entrepreneurs and with the support of LN Mittal andeasy availability of funds, has come a long way since then. The first phase of the growth story was between 2002 and 2008,when the company concentrated on aggressive growth and expansion, providing various financial services and high yieldingrisky products.

However, with the financial crisis and liquidity crunch in 2008 and 2009, the company had to learn a lesson and hive off theshort term lending practices, move out of unsecured lending, stop the risky products and move towards a long term and a

sustainable business practice. This transformation lead to company concentrating on mortgage loans and today IBFSL is


.

It is this transformation that we are betting on and we believe that it would serve as the base for the company to achievea robust growth for several years to come.

We expect IBFSL to grow its assets by close to 37% in FY 12 and to grow its Interest income by more than 33% in the sameperiod. We believe that this would lead to an earnings growth of 27% – 30%% in FY 12. The company is currently available

at a very attractive P/B valuation of 1.05 and a 1 year forward P/E of 5. Considering the strong growth prospects of thecompany along with a 6% dividend yield, higher ROA and a increasing ROE, we believe that the counter can easily trade at aP/B valuation of 1.5 times and command a P/E of 8 times on FY 12E earnings.

Assuming a Target P/B of more than 1.6 and assuming a Target P/E of 8 times FY 12E earnings, we recommend a BUY onthe counter, with a Target price range of Rs 246, for a investment period of less than 12 months.




For more information on Indiabulls Financials and the opportunity in it, feel free to discuss with Gokul Raj. P

Mail Id : [email protected] Mobile: +91-9994577745

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