Shares of real-estate-focused Indiabulls group companies have surged this year, aided by the government’s housing push, a restructuring within the group and a bet on consumer financing.
The group's flagship Indiabulls Housing Finance Ltd. is the top gainer among the Nifty 50 stocks, returning 66 percent year-to-date. Indiabulls Real Estate Ltd. has risen 176 percent, the highest among the Nifty Realty Index. Indiabulls Ventures Ltd.’s shares are up nine-fold.
Prime Minister Narendra Modi’s housing for all by 2022 plan and easier norms for loans for low-cost houses are expected drive growth for real estate and related sectors. Affordable housing finance, largely for loan ticket size up to Rs 15 lakh, will become a large segment in the next five years, with the estimated share to increase by more than a third to around 37 percent, according to India Ratings. The agency anticipates a demand for 25 million homes, four-times the entire current housing finance stock, during the period, pegging the size of the opportunity at Rs 6 lakh crore.
The rating agency, however, warns of a risk of aggressive expansion without ensuring appropriate credit assessment, especially in view of limited financial data available and possibly less financial savvy customer segment. The segment also requires high customer connect, therefore, attracting and retaining people with on ground connect would be of prime importance, it said.
Brokerage Views On Indiabulls Companies
The home finance company is expected to benefit from the government’s thrust on affordable housing. Brokerage house JPMorgan remains ‘overweight’ on the stock citing the company’s strong execution skills and a resilient business profile. Bank of America Merrill Lynch also ranks the stock as its top pick in the non-banking financial space. BofA ML has a word of caution though, adding that high growth may lead to a spike in non-performing loans, hurting earnings momentum.
The group’s decision to split the company into two verticals, one which will house all commercial properties and earn rents and the other which will house the residential division -- building real estate properties. JPMorgan believes that the stock should see a significant re-rating over the next few quarters as earnings scale up. The company last week raised Rs 662.83 crore from sale of 3.3 crore treasury shares held by the IBREL IBL Scheme Trust. Lower than expected sales momentum and delay in pickup in revenue recognition could be key risk for investors moving forward added JPMorgan.
The company which started off as a broking firm and a real estate marketing entity is now looking at higher growth segments likes consumer financing. The recently infused Rs 1,000 crore in its consumer finance arm, IVL Finance Ltd. The company also raised Rs 448.8 crore through share issuance to Singapore-based Tamarind Capital Pte Ltd. This is the second round of fund raising within a month of the company raising Rs 227 crore from Cinnamon Capital at a price of rupees 58.4 per share.