Indiabulls Housing unlikely to gain much from stake sale in realty arm

At best, it could improve the company's liquidity situation

The Indiabulls group’s decision to sell 14 per cent stake in Indiabulls Real Estate is expected to help its financing arm, Indiabulls Housing Finance. 

The deal comes at a time when the non-banking lending space is grappling with liquidity issues. “The stake sale is likely to improve leverage and give liquidity support to Indiabulls Housing. Incremental disbursements in the retail and non-retail segments, and managing liquidity, are key triggers for the stock,” says Shubhranshu Mishra, analyst at Bank of Baroda Capital markets. 

The move, however, may not lead to significant gains for the stock (down marginally on Friday), given multiple headwinds in the sector. The impact of the liquidity crisis can be seen in the Indiabulls Housing’s performance in the March quarter. Its assets under management, which indicates size of loan book, declined by 1.7 per cent year-on-year and 3 per cent sequentially to Rs 1.2 trillion. 

While the company did pass on the high cost of funds to borrowers to protect its profitability in the quarter, higher funding costs will make it difficult for the firm to maintain its margins. 

In addition, the issues impacting the real estate sector, too, will have a bearing on the performance in future. The asset quality of Indiabulls Housing’s corporate mortgage portfolio is a key monitorable, said an analyst at a domestic broking house. 

Of the total loan book size, 17 per cent is accounted for by real estate developer or corporate mortgage loans. Gross bad loans were, however, stable at 0.88 per cent as of March 2019. 

This apart, the Reserve Bank of India’s decision on the Indiabulls Housing-Lakshmi Vilas Bank merger is another key event. 

Analysts, however, believe that this may not come about, given the RBI’s track record on licence approval for entities with interest in real estate and capital markets. For now, analysts advise investors to stay away from NBFCs and look at private banks instead.