Indiabulls Housing Finance
Indiabulls Housing Finance Ltd. (IBHFL) is the second largest private housing finance company in India The Company will buy back bonds worth up to $50 million, which is a part of its $1.5 billion bond program.
Post the collapse of IL&FS and the default by DHFL, banks and mutual funds are unwilling to lend to most non-banking finance companies. Due to this liquidity crunch, Cost of funds for the company is ticking higher and their funding mix is changing towards high cost debt. While the company appears to be raising money from the market every year, their balance sheet appears to be shrinking. The company’s strategy of selling old loans to make new loans might work in the short run, but in the long run this won’t be feasible.
Over the past few quarters, the company has made several efforts to improve its liquidity position by curtailing disbursements and focusing on raising money. The company reported a weak quarter in June,2019. Net interest income declined by 13% while net provisions jumped 128% resulting in a 24% yoy decline in the net profit of the company in Q1FY20. The company’s assets quality worsened during the quarter with gross non-performing asset (NPA) ratio rising to 1.47% from 0.88% in Q4FY19. Its net NPA ratio increased to 1.1% from 0.69% in the preceding quarter. Indiabulls Housing Finance said its loan books were down 10% yoy. During the quarter, it got 6000 crores worth of commercial real estate loans refinanced which resulted in an overall 10%yoy decline in AUM. A further reduction of 2000-3000 crores is likely.
With the slowdown in the real estate sector, Indiabulls Housing Finance is now moving towards the banking sector. Lately, the company has announced its plans to amalgamate its company with Lakshmi Vilas Bank (LVB) for which it is awaiting RBI and other regulatory approvals. However, this is unlikely to happen any time soon since the RBI has been cautious about giving bank licenses to groups connected to real estate and discourages banks from increasing exposure to real estate sector disproportionately.
The stock consolidated for months in the 1121 and 1400 levels. The stock was giving small corrections but the RSI was shifting from the bull zone to bear zone and that was indicating trouble for the counter. The big fall in the counter happened once the RSI came in the bear zone. The same has been circled on the charts. A stock that cannot retrace more than 38.2% of the fall is an indication of extreme weakness. The stock could not retrace beyond the 924 levels which is the 38.2% of the fall. The 600 levels is an important zone as the bulls had made a base here before it touched the 1440 levels. Therefore the break of the zone was an indication that the bears are in absolute change and the stock has loads of room on the downside. The gap in the zone is further indication that an important zone has been broken. The stock retested the zone and that has confirmed the break. The Fibonacci extension is giving a target of 129 levels. Therefore a huge downside in the counter is in the making and hence exiting the counter is the best strategy .