Indiabulls Housing Finance reported its second quarter and first half 2017 financial reports last week. We do believe this sector will do far better in creating wealth for investors for the next 3 – 4 years.

If we look at its quarterly results, total income from operations had jumped up by 26.45% on YoY basis and 5.82% on QoQ basis. Profit before taxes was reported as Rs 921 crore compare to Rs 741 crore in previous year quarter. Net profits had jumped up by 23.02% to Rs 684 crore on YoY basis and 8.57% on QoQ basis.

Here is the report card of its first half results:

IBHF 1H – 2017 % 1H – 2016 % % Difference
Revenues 4,882 100% 3,814 100% 28%
EBT 1,796 36.79% 1,434 37.60% 25.24%
Net Profits 1,314 26.92% 1,067 27.98% 23.15%


Is Indiabulls Housing Finance trading at cheap valuations?

Analysts who cover this stock are expecting its earnings to grow by 14% for the 2017 financial year. They all are expecting Indiabulls Housing Finance to report its earnings in the range of Rs 2,727 crore – Rs 3,010 crore. If we punch those numbers in our calculations for its intrinsic value, then the spectrum comes to Rs 724 – Rs 842 per share.

Looking at the results it looks they will manage to report their earnings closer to the lower band of spectrum. Indiabulls Housing Finance is trading outside its 2017 intrinsic value band, which makes it expensive. However, it is still trading within its 2018 valuation spectrum today. If you are interested to know its 2018 valuation spectrum then please leave your comment below and I will be happy to share with you all.

Watch out

When you look at the company results especially the ones who deal in the finance products, be careful and do not get eluded by its earnings growth. Those earnings growth might be not organic. Businesses like Indiabulls Housing Finance don’t only retain profits after paying dividends but also keep raising capital (diluting its capital base) to fix their balance sheet. Last year we calculated its return on equity of 27% looking its financials. But even after the growth of 23% in its earnings this financial year, its expected return on equity for 2017 is expected approximately 24%, less then reported last year. This is because of the lower growth in its book value.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.