Indiabulls Housing Finance (IHFL) trades at 1.6x FY16E P/B and 5.3x FY16E P/E. Though the stock has got rerated over the last few months, we believe a strong positioning in mortgage segment, potential for market share gains, healthy margins and return ratios, good asset quality and healthy dividend yield would drive further re-rating. We initiate coverage with a ?buy? rating and a target of R445 (2x FY16E P/B).
Healthy profitability, coupled with high dividend payout, boosted FY14 RoE at 27% and RoA to 3.8%. Average three-year RoE stands at 25% and is notably one of the best among peers.
IHFL has been one of the better dividend paying companies, with an average payout ratio of +50% in the past three years and an average dividend yield ratio of 8-10% for the similar period. The management has guided that given adequate capital buffer and healthy profitability, the company will maintain a healthy payout ratio of ~60% for the next three years.
After establishing a strong presence in the mortgage market, IHFL is poised to gain further traction. Healthy AUM growth, led by market share gains, stable/improving spreads and margins, improving productivity (continuous decline in CI ratio) ,along with lower loan loss provisions, will drive 23% PAT growth over the next three years.
-Motilal Oswal
