IndiaBulls Financial Services 1Q: Exactly in-line; Buy for growth and risk-return 􀂄 BofA Merrill Lynch,

IndiaBulls Financial Services
1Q: Exactly in-line; Buy for
growth and risk-return
􀂄 In-line 1Q12, +20% profit growth led by lower credit costs
IBFSL reported earnings of Rs2.7bn, a +20% yoy growth, exactly in-line with our
estimates driven by lower credit costs, as asset quality held-up well. Topline grew
~9% yoy driven by AUM growth of 41% yoy (loan growth of 32% yoy), however
spreads declined by over +150bps yoy to ~350bps (stable qoq) on changing loan
mix. Moreover, disbursement growth also strong at 20% yoy. Fee growth +20%
yoy. While gross / net NPLs are up ~6/7%, resp. qoq, asset quality remains very
manageable, with gross / net at NPLs at only ~0.8 / 0.3%, resp. Total prov. cover
is +140% (incl. +Rs1.2bn of floating prov.). Tier1 at +17.5%.

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Tweak earnings by <1% for FY13/14E; Profit growth at ~25%
We have tweaked our earnings by <1% for FY13/14. We still estimate net profit
growth of +25/20% in FY13/14 (EPS growth of ~17% in FY13 factoring in
~20.7mn warrants issued in March’12 to promoter group) driven by a) +24/19%
AUM growth and b) spreads stabilizing from hereon, with marginal upward bias
from any favorable down shift in funding costs.
Management guidance continues to be maintained for FY13
IBulls management maintains its guidance of ~30% AUM growth and spreads at
+3.25-3.5% for FY13. The company has also maintained its net profit guidance of
+20% in FY13, with manageable asset quality (net NPLs at <0.3-0.4%).
Risk return positive; 22% return potential (~6% div. yield)
We maintain our PO of Rs275 and a Buy rating as a) we expect net profit growth
to remain strong (+25/20% in FY13/14E); b) RoEs at +23/24% in FY13/14E vs.
~21% in FY12 and; 3) manageable asset quality (net <1.0% in FY14E; currently at
0.3%) and high comfort on capital (Tier 1 at +16% in FY14E). Hence, the stock
trading at 1.4x FY13 adj. book should be able to re-rate to at least 1.6x on Gordon
theory model. Reiterate Buy for +22% return potential including ~6% prospective
dividend yield.


IndiaBulls Financial Services (IBLFF)
We set our PO at Rs275. We believe the shares can re-rate to at least 1.6x
FY13E adj. book driven by 1) sustaining net profit growth at +25/20% for
FY13/14E, 2) RoEs at +23% in FY13E/14E vs. 21% in FY12 and, 3) manageable
asset quality (net <0.5%) and high comfort on capital (Tier 1 at +17%). Our PO
implies target P/E of 7.3x. We are pegging the PO at 10% premium to Gordon
theory multiples (normalized RoE at 20% and CoE at 13.5%), factoring in a strong
earnings trajectory and business momentum. Risks are a very strong business
growth leading to a spike in NPLs, which could hurt earnings momentum, and a
sharp rise in wholesale borrowing costs can lead to spread compression.