Indiabulls Housing Finance: Moving Towards A Higher Plane
With the company having laid the foundation of its new retail-focused, asset-light business model, FY22 will be a year of ‘transition and growth’ as it will look to put itself on a rating upgrade trajectory and effectively utilise its co-lending partnerships to scale up retail disbursals
Indiabulls Housing Finance is third-largest housing finance company in the country. A technology-focussed organisation that introduced India to its very first end-to-end digital home loan technology platform, the company has been of service to more than 1 million happy home owners across the country and has collectively disbursed loans of over Rs 2.84 lakh crore. As the company has grown over the years, customer delight has been an unwavering priority. The company takes pride in being able to provide its customers with smart solutions and rich experiences through 3,480 employees operating across its nationwide network of 125 branches, 8,000+ channel partners and pioneering digital platforms that offer customised solutions and round-the-clock service to its customers.
The company ensures that no stone is left unturned in providing quality customer experience throughout a customer’s journey; right from helping them find the perfect property to supporting them through the more detailed requirements of credit due diligence, approval and eventual fulfilment with disbursal of the loan. Every solution is tailor-made to ensure that the home buying process is not just happy, but a memorable one. Beyond home loans for resident Indians and non-resident Indians (NRIs), the company also offers loans to small businesses and MSMEs against their properties to unlock the financial potential of their properties and home loan balance transfers that give customers the option to switch from their existing loans for better service, terms or top-up loan amounts.
Sector Overview
Housing finance companies and non-banking finance companies have been impacted by the pandemic by way of operational disruptions, subdued collections and requirement of creating additional provisions to meet the post-pandemic uncertainties. The financial year saw equity funds raised by all major players in the financial sector, including private sector banks, to keep up the capital adequacy cushion in the post-pandemic scenario. However, since the opening up of the economy from August 2020 onwards, all the major players have seen their collection efficiencies gradually returning to the pre-pandemic levels. Adapting to the restrictions of the imposed lockdowns, banks, NBFCs and HFCs are ramping up their digital initiatives in order to keep up the loan book growth and to attend to customer requirements.
Continuing with its focus towards its headline mission of ‘Housing for All by 2022’, the government in its Union Budget for FY 2021-22 announced a slew of measures to boost the housing sector. Under the Credit Linked Subsidy Scheme (CLSS), a component of Pradhan Mantri Awas Yojana (PMAY), the government extended the benefit of additional tax deduction of interest up to Rs 1.5 lakhs on home loans availed for purchase or construction of affordable houses till March 31, 2022. To further boost the supply of affordable housing projects in the country, tax holiday for affordable housing projects has been extended till March 31, 2022. The government also announced tax exemption for notified affordable rental housing projects in order to promote the supply of affordable rental housing for migrant workers.
Financial Overview
Analysing the performance of the company during the recent quarter, the interest income was recorded at Rs 2,195.96 crore as compared to Rs 2,463.71 crore reported for Q2FY21, a decline of 10.86 per cent. Total income descended from Rs 2,581 crore in Q2FY21 to Rs 2,232.79 crore in Q2FY22. PAT for Q2FY22 is Rs 286 crore, up 1.7 per cent on a QoQ basis over Q1FY22 PAT of Rs 282 crore whereas it has declined as compared to Rs 323.20 crore recorded in Q2FY21. The quarterly earnings have stabilised and shown a trend of growth. Gross NPAs declined to 2.69 per cent in Q2FY22 from 2.86 per cent in Q1FY22.
Net NPAs stood at 1.53 per cent whereas provisions were four times the regulatory requirements and 152 per cent of gross NPAs. On the other hand, provisions to the loan book were at a very healthy 4.9 per cent. Capital adequacy was recorded at 31.2 per cent and Tier I at 24.9 per cent. In September 2021, the company raised Rs 792 crore through public issue of NCDs and the issue was subscribed roughly four times the base issue size. On the annual front, the interest income has declined from Rs 11,548.60 crore in FY20 to Rs 9,721.96 crore in FY21.
The total income reported for FY21 stood at Rs 10,030.12 crore, dipping 24.14 per cent as compared to total income of Rs 13,223.23 crore reported in FY20. The net profit for the period slipped from 2,165.92 crore in FY20 to Rs 1,201.59 crore in FY21. Gross NPAs for FY21 were 2.66 per cent whereas for FY20 the number was 1.8 per cent. CRAR showed an improvement from 27.1 per cent in FY20 to 30.7 per cent in FY21. In FY21, Rs 2,671 crore of new regulatory equity capital was raised from QIP and partial sale of stake in Oak North Bank. Further, additional Rs 1,100 crore was raised through convertible bonds. To sum up, a total of Rs 3,771 crore was raised from overseas investors in FY21.
A New Model
During the year, the company took steps in transitioning to a retail-focused, asset-light growth engine. It has let its higher ticket loans across product segments run off and has done most of the incremental disbursals towards retail loans. With the ‘originate and securitise’ part of the business model well-oiled and running, it held a focus of scaling up the co-lending partnerships during the year. A very important achievement towards this goal was the company’s co-lending tie-up with HDFC Ltd., the country’s largest housing finance company, to offer housing loans to homebuyers. Under this partnership, IBH will originate retail home loans as per the jointly drawn up credit policy and retain 20 per cent of the loan on its books while the remaining 80 per cent will be on HDFC’s books.
IBH will service the loan account throughout the lifecycle of the loan and will thereby earn a trail income over the life of the loan. Integration with HDFC Ltd. will give IBH the benefit of a large franchise, scale and a robust credit appraisal process and will act as a cornerstone to IBH’s new balance-sheet and light-growth business model. For secured MSME loans, the company entered into co-lending relationship with RBL Bank in mid-FY 2020-21 and disbursals were seen scaling up every month. It also entered into co-lending agreements with Bank of Baroda for sourcing home loans and Central Bank of India for sourcing home loans and secured MSME loans.
Outlook
The year 2021 proved to be a volatile year for the real estate sector and the housing finance companies due to the pandemic. The following year 2022 may prove to be a stable year for both commercial as well as the residential sectors. Sales momentum in the real estate sector is predicted to continue in 2022 owing to the prospective home buyers’ preference for bigger homes, better amenities and attractive pricing. Also, with increased penetration of institutional players on the development as well as financial side, a gradual price rise is expected by well-deliberated project performance milestones.
The disruption caused by the pandemic is gradually fading and the real estate market is expected to gain back its rhythm in the coming two to three quarters. However, the threat of the new virus variant is likely to impact with minimum disruption in the early part of 2022. FY21 is named by Indiabulls Housing Finance as year of ‘repair and transition’. The company’s focus has been successful in building a healthy balance-sheet and equity capital raises have pushed its capital levels so that the asset quality is observed to be stable. With its optimally matched ALM, it has built a strong provision buffer along with stabilised credit ratings.
As discussed above, the company has also laid the foundation of its new retail-focused, asset-light business model. FY22 will be a year of ‘transition and growth’ for the company as it will look to put itself on a rating upgrade trajectory and will also work to effectively utilise its co-lending partnerships to scale up retail disbursals. The company’s aim in FY22 is to completely execute the transition of its business model with technologyenabled, low-cost mortgage origination and servicing platform. To achieve this, the company will be investing in people, technology, cost-efficiency and asset quality. Hence, we recommend BUY.