LIC Housing Finance has been amongst the largest Housing Finance NBFC in India after Housing Development Finance Corporation Ltd. or HDFC. HDFC did annual revenues of about Rs.48,000 crores and a Net Profit of close to Rs.7000 crores for FY'15. LIC Housing Finance's Total Income at Rs.10,800 crores is a fraction of HDFC's number. But on one hand where HDFC's annual income is less than 5 times LICHFL's, the former's Market Cap is nearly 9 times that of the latter!! HDFC's Market Cap stands at over Rs.1,80,000 crores compared to less than Rs.21,000 crores for LICHFL!! There are various factors behind this. Some of them being Quality of Assets, Consistency of Growth, much longer track record, Large unlisted investments of HDFC, etc.
( Click here for Indiabulls Housing Finance's Easy Results Summary page. )
So we cannot directly compare HDFC with any other Housing Finance company. But we can certainly compare LIC Housing Finance with another fast rising NBFC in the same business, i.e. Indiabulls Housing Finance Ltd. The flagship company of the Indiabulls Group, earlier known as Indiabulls Financial Services Ltd, was originally involved in providing finance for Used Commercial vehicles, Business Loans, Personal Loans, alongwith Loans for purchase of Property/Real Estate. This company has been in the Financing business for over 10 years now and has a good track record of strong growth over the years. Even though Home Loans formed over 50% of it's business right from FY'06, it decided to purely focus on this part of the business after it took some hit during the FY'2008-09 economic upheaval. In the next few years, it did not expand the Non-Home Loans business and gradually brought it down to less than 5% of it's business composition. During FY'2012-13, the company decided to register itself as a Housing Finance Company and change it's name accordingly, as there were cost advantages for being a Housing Finance company. We can safely say that whatever growth the company has seen from FY'10 onwards is purely because of expansion of it's Housing Finance Loan Book.
In the following charts, I have compared to Annual numbers of Indiabulls Housing Finance Ltd. with that of LIC Housing Finance Ltd. for 5 years from FY'11 to FY'15.
Now let's look at the first chart. In FY'11, Indiabulls' Total Income stood at Rs.2500 crores, just half of LIC HFL's Rs.5000 crores. The latter's Total Income has now grown to Rs.10,800 crores in FY'15, i.e. a growth of 116% in four years time. During the same period Indiabulls HFL's Total Income has posted a growth of 190% to post Rs.7270 crores. In FY'15, LIC HFL's Revenues grew by 15% Y-o-Y, whereas Indiabulls HFL's growth was 23%. From FY'16, I am expecting the gap between the two companies' topline to start reducing as Indiabulls HFL is expected to continue posting a growth which is atleast 5% more than that of LIC HFL.
Coming to the 2nd chart of Interest Cost, which is the biggest cost for any Financing company or a Bank. Indiabulls HFL's Interest Cost has grown from Rs.899 crores in FY'11 to Rs.3944 crores in FY'15, an increase of almost 340%. On the other hand, LIC HFL's Interest Cost has gone up from Rs.3098 crores in FY'11 to Rs.8310 crores in FY'15, an increase of almost 170%. Purely in terms of % increase in Interest Cost, LIC HFL has done better. But here it will be more important to see how much % of the company's Total Income is consumed by the Interest Cost, because this is what will impact the company's Profit margins. Here again Indiabulls HFL has done much better because over the last 3 years, it's Interest Cost has been around 55% of it's Total Income, whereas the same for LIC HFL is close to 76%. From these numbers it becomes obvious that Indiabulls HFL has been managing it's Borrowings much much better than LIC HFL, which ultimately results in way superior Profit margins for the former.
Thanks to the superior management of it's borrowing costs, Indiabulls HFL has done stupendously better than LIC HFL on the Net Profit front. Between FY'11 and FY'15, Indiabulls HFL's Net Profit grew from Rs.743 crores to Rs.1901 crores, an increase of 156% in 4 years. During the same period, LIC HFL's Net Profit grew from Rs.974 crores to Rs.1386 crores, a disappointing growth of just 42%. This is extremely disappointing from LIC HFL because even though it's Total Income is 50% higher than that of Indiabulls HFL, the latter's Net Profit is 37% higher than the former!! In such a scenario, how on earth does LIC HFL deserve a Market Cap of Rs.21,000 crores while Indiabulls HFL is commanding a value of Rs.20,000 crores!! Going by the stronger growth in Total Income, better management of borrowing cost, much stronger profit margins, isn't it plain simple Logic that Indiabulls HFL should trade at a premium to the valuation enjoyed by LIC HFL??
At the current price of Rs.415/- LIC HFL enjoys a P/E ratio of 15, whereas at Rs.565/- Indiabulls HFL enjoys a P/E ratio of just over 10!! This is really funny and does not make any sense. Hence I think this is an excellent opportunity for Investors to take advantage of a potential re-rating in the stock of Indiabulls Housing Finance Ltd. With an expected growth of about 20% in FY'16 and a potential P/E of 15, I think Indiabulls HFL's 12-18 months fair value comes to over Rs.900/-. All this before even mentioning the Trump Card for Indiabulls HFL, which is it's Dividend Payouts, which have risen sharply over the years. Indiabulls HFL has been paying between 50% to 70% of it's Quarterly Profit as Dividend on a consistent basis. In FY'15 it paid Rs.35 per share in total dividends, which translates into a Dividend Yield of over 6%. And we can safely assume that the dividends will be increasing in line with the increase in Profits. So the Potential Dividend Yield in coming Years at the current price of Rs.565/- in actually much much higher. And remember that Dividends are Completely Tax-Free for the Investors. A point to note is: The huge Dividend payouts is hugely positive for Shareholders, but Cash is like Raw Material for any Financing company. Indiabulls HFL could conserve some of it's Capital by distributing lower amount as dividend and use that Capital to enhance it's business further. But the Indiabulls Group seems to believe in distributing most of it's profits amongst it's shareholders.
( Click here for Indiabulls Housing Finance's Easy Results Summary page. )
So we cannot directly compare HDFC with any other Housing Finance company. But we can certainly compare LIC Housing Finance with another fast rising NBFC in the same business, i.e. Indiabulls Housing Finance Ltd. The flagship company of the Indiabulls Group, earlier known as Indiabulls Financial Services Ltd, was originally involved in providing finance for Used Commercial vehicles, Business Loans, Personal Loans, alongwith Loans for purchase of Property/Real Estate. This company has been in the Financing business for over 10 years now and has a good track record of strong growth over the years. Even though Home Loans formed over 50% of it's business right from FY'06, it decided to purely focus on this part of the business after it took some hit during the FY'2008-09 economic upheaval. In the next few years, it did not expand the Non-Home Loans business and gradually brought it down to less than 5% of it's business composition. During FY'2012-13, the company decided to register itself as a Housing Finance Company and change it's name accordingly, as there were cost advantages for being a Housing Finance company. We can safely say that whatever growth the company has seen from FY'10 onwards is purely because of expansion of it's Housing Finance Loan Book.
In the following charts, I have compared to Annual numbers of Indiabulls Housing Finance Ltd. with that of LIC Housing Finance Ltd. for 5 years from FY'11 to FY'15.
Now let's look at the first chart. In FY'11, Indiabulls' Total Income stood at Rs.2500 crores, just half of LIC HFL's Rs.5000 crores. The latter's Total Income has now grown to Rs.10,800 crores in FY'15, i.e. a growth of 116% in four years time. During the same period Indiabulls HFL's Total Income has posted a growth of 190% to post Rs.7270 crores. In FY'15, LIC HFL's Revenues grew by 15% Y-o-Y, whereas Indiabulls HFL's growth was 23%. From FY'16, I am expecting the gap between the two companies' topline to start reducing as Indiabulls HFL is expected to continue posting a growth which is atleast 5% more than that of LIC HFL.
Coming to the 2nd chart of Interest Cost, which is the biggest cost for any Financing company or a Bank. Indiabulls HFL's Interest Cost has grown from Rs.899 crores in FY'11 to Rs.3944 crores in FY'15, an increase of almost 340%. On the other hand, LIC HFL's Interest Cost has gone up from Rs.3098 crores in FY'11 to Rs.8310 crores in FY'15, an increase of almost 170%. Purely in terms of % increase in Interest Cost, LIC HFL has done better. But here it will be more important to see how much % of the company's Total Income is consumed by the Interest Cost, because this is what will impact the company's Profit margins. Here again Indiabulls HFL has done much better because over the last 3 years, it's Interest Cost has been around 55% of it's Total Income, whereas the same for LIC HFL is close to 76%. From these numbers it becomes obvious that Indiabulls HFL has been managing it's Borrowings much much better than LIC HFL, which ultimately results in way superior Profit margins for the former.
Thanks to the superior management of it's borrowing costs, Indiabulls HFL has done stupendously better than LIC HFL on the Net Profit front. Between FY'11 and FY'15, Indiabulls HFL's Net Profit grew from Rs.743 crores to Rs.1901 crores, an increase of 156% in 4 years. During the same period, LIC HFL's Net Profit grew from Rs.974 crores to Rs.1386 crores, a disappointing growth of just 42%. This is extremely disappointing from LIC HFL because even though it's Total Income is 50% higher than that of Indiabulls HFL, the latter's Net Profit is 37% higher than the former!! In such a scenario, how on earth does LIC HFL deserve a Market Cap of Rs.21,000 crores while Indiabulls HFL is commanding a value of Rs.20,000 crores!! Going by the stronger growth in Total Income, better management of borrowing cost, much stronger profit margins, isn't it plain simple Logic that Indiabulls HFL should trade at a premium to the valuation enjoyed by LIC HFL??
At the current price of Rs.415/- LIC HFL enjoys a P/E ratio of 15, whereas at Rs.565/- Indiabulls HFL enjoys a P/E ratio of just over 10!! This is really funny and does not make any sense. Hence I think this is an excellent opportunity for Investors to take advantage of a potential re-rating in the stock of Indiabulls Housing Finance Ltd. With an expected growth of about 20% in FY'16 and a potential P/E of 15, I think Indiabulls HFL's 12-18 months fair value comes to over Rs.900/-. All this before even mentioning the Trump Card for Indiabulls HFL, which is it's Dividend Payouts, which have risen sharply over the years. Indiabulls HFL has been paying between 50% to 70% of it's Quarterly Profit as Dividend on a consistent basis. In FY'15 it paid Rs.35 per share in total dividends, which translates into a Dividend Yield of over 6%. And we can safely assume that the dividends will be increasing in line with the increase in Profits. So the Potential Dividend Yield in coming Years at the current price of Rs.565/- in actually much much higher. And remember that Dividends are Completely Tax-Free for the Investors. A point to note is: The huge Dividend payouts is hugely positive for Shareholders, but Cash is like Raw Material for any Financing company. Indiabulls HFL could conserve some of it's Capital by distributing lower amount as dividend and use that Capital to enhance it's business further. But the Indiabulls Group seems to believe in distributing most of it's profits amongst it's shareholders.
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