Stock Review: Indiabulls Financial Services

 

 

Co's Net Profit Doubles In Sept Quarter, To Focus On Housing Finance To Drive Growth

 

THE stock of Indiabulls Financial Services shot up after the company declared a robust set of numbers for the September 2010 quarter. This may offer some relief to investors, since the stock has largely underperformed the benchmark indices over the past one year.

   The company's net profit more than doubled in the September quarter. The surge in profit was mainly on account of strong loan growth. At 169%, the disbursement growth has been substantially high compared with the year-ago levels. While this can partly be attributed to a low base in the September 2009 quarter, the rise on a sequential basis has also been high.

The company has increased the share of less risky mortgage loans in its overall credit portfolio. This has improved the overall quality of its assets. The share of non-performing assets in the total assets has significantly reduced from 1.7% a year ago to about 0.6%.

   The management has indicated that housing finance would be the growth driver going forward. Typically, the yields are lower in the housing finance segment. This might put some pressure on the spreads – the difference between the company's borrowing and lending costs. Spreads for the September 2010 quarter stood at about 6%.

   Another important feature of the results was that the capital adequacy ratio stood at around 21.1%. This is substantially higher than the 12% minimum that would be required to be maintained by the end of FY 2011.

   According to the management, the company has sufficient capital base to meet its growth targets for the next 2-3 years.

   This is good news for investors since this may not necessitate dilution of equity going ahead, thereby preventing a drop in earnings per share.

   At around 13 times its trailing 12 months earnings, the company's stock price is still trading at a discount to its historical valuations. With the robust quarterly numbers, the company might be able to gain investors' confidence once again.