Dear Shareholders and friends
The year gone by has been one of many milestones. In May 2018Indiabulls Housing Finance was ranked as the 13th largest consumer finance company in theworld by Forbes. The list is based on a composite score factoring in sales profitsassets and market value. We are one of only two Indian companies on the list.
The year was momentous for your Company as CRISIL an S&P Companyand ICRA a Moody's Company upgraded the Company's long-term credit rating tothe highest AAA. With this rating upgrade all four leading rating agencies in India rateIBHFL at the highest long-term rating of AAA. IBHFL is only the second private non-banklender to be upgraded to this level in 19 years and only the fifth private lending group[banks and non-banks] to be rated AAA by CRISIL.
~70 Mn Houses
Total expected opportunity over the next 7 years
The tailwinds from the rating upgrades helped us negotiate theincreasing rate environment and we were comfortably able to maintain our spreads as ourincremental funding costs were appreciably lower than our cost on the stock of borrowings.We now have an optimally diversified borrowing profile and a wide base of 507 borrowing
Coordinated policy measures aimed at all sections of the housing market
|Home buyers || Incentiv es from PMAY subsidy and tax deductions |
| || H ome loan rates in affordable housing at 0.42% |
| || RERA in place: transparency and delivery visibility to buyers |
| || 90% of government-run pension fund EPFO can be withdrawn for house purchase |
|Real Estate Developers || 100% corporate tax exemption on profits from affordable housing construction |
| || Quick er building permissions |
| || RERA in place: transparency and delivery visibility to buyers will aid sales |
|Housing Finance Companies || Infr astructure status for affordable housing easing to institutional credit |
| || RBI SEBI and IRDAI have coordinated policies to ease access to funding |
| || R eduction in risk weights and easing of LTV caps |
relationships which affords us many levers to keep our fundingefficient and cost-effective.
The India Opportunity
Housing continues to benefit both from inherent demand driven bysocio-economic and demographic factors and from specific government policy focus. Housingshortfall in the country is estimated at about 41 million units. Demographic factors likepopulation growth and nuclearisation of traditional joint-family structures along withrising income and aspirations is giving rise to incremental housing demand estimated at~10 million houses per annum.
The housing sector has the ability to propel rural and urban economicactivity. It is the country's 4th largest employment provider employing bothsemi-skilled and unskilled labour. Housing and the larger real estate sector has a highgrowth multiplier effect on the economy with linkages to over 250 ancillary industriesthereby accounting for ~5% of GDP. The housing sector's socio-economic importance hasmade housing the centrepiece of the government's economic policy. In coordinationwith sectoral regulators the government has unveiled many specific policies and fiscalincentives for the sector.
eHome Loans: The Next and the Most Important Focus of IndiabullsHousing Finance
Retail lending landscape in India is rapidly changing asDigital' has started to play a key role in loan fulfillment. A recent report byBCG and Google notes that 61% of Home Loan customers are influenced by digital platformsand channels. The report also highlights the large digital lending opportunity in Indiaand estimates that the Total Retail Loans which could be disbursed digitally in the next 5years could be over $1 Tn. Annual digital disbursements in 5 years would now be nearly 5Xof present levels.
We have the first mover's advantage here through the eHome Loansplatform that we launched two years ago. We have already started to reap the benefits ofthis platform with it contributing to 27% of our incremental home loans disbursed. Duringthe course of FY 2018-19 our eHome Loan product will evolve into a comprehensiveIndiabulls Digital Home Loans Platform. This platform will be driven by strong analyticsengines and also brings on developer and external channel partners like DSAs anddevelopers into the interconnected network. We aim to automate a large proportion ofcredit underwriting for salaried customers and tie up access to GST filing databaseproviding credit teams with authentic revenue information on small businesses forunderwriting of LAP and home loans to self-employed customers. Analytics and social mediaintegration will give us a means to stay engaged with our customers helping us betteranticipate their needs opening up cross-sell and resultant fee generation opportunities.
We will have the ability to process home loans on construction sites asthe buyer concludes his purchase and we will be able to immediately disburse todevelopers crunching developer working capital cycles. We aim to be preferred financiersfor developers in our target home loan segment significantly increasing our loans perproject.
A few clear financial outcomes that we target through this technologyinitiative are:
Long -term sustained loan earnings growth of between 20% and 25%
Enhanced fee generation opportunities taking fee to disbursalspast 2% from the present 1.6% of disbursals
Oper ating efficiencies resulting cost-to-income of under 10.0%
R educed credit costs of under 0.5%
Enabling Regulatory and Macroeconomic Environment
The housing sector is also benefitting from two major reform measures:RERA and GST. RERA has led to consolidation in the industry and has boosted buyerconfidence as there is now visibility of delivery of purchased houses as RERA requiresdevelopers to communicate and bind to delivery timelines. The year under review saw anuptick in housing demand particularly in the affordable segment. Disbursal growth in thissegment was at 33% in FY 2016-17 since then the PMAY credit-linked subsidy scheme hasbeen extended to include the mid-income group our core customer segment leading tosustained robust demand uptick. HFCs continue to steadily gain home loan market sharefrom banks and now account for 42% of the country's home loans market (55%incrementally) up from 33% in FY 2009-10. An indication of very strong near-term growthis a comparison with China's individual mortgage market which at $ 3.5 Tn is 14x thanthat of India's
$ 245 Bn while China's GDP is only 5x that of India. With Indiaagain slated to overtake China's GDP growth this year it is my strong belief thatwe'll see very strong 30% level growth in the near term.
The first phase of Indiabulls housing's growth was equity fuelled.As our ratings improved through this period we firmly established ourselves as a primelow-risk mass market home loan provider. Today we have the highest long-term rating ofAAA from all four leading Indian rating agencies. Our strong liability franchise spreadacross diversified funding sources and an optimal mix of loan products give us thebest-in-class spreads that have sustained within our guided range of between 300-325 bps.
We have grown strongly across all key parameters. Our balance sheetsize at the end of FY 2017-18 stood at Rs 131903 and Crores up 27.2% over last year.Our total loan assets are at Rs 122578 Crores up
34.3% from Rs 91301 Crores at the end of FY 2016-17. Profit after taxfor the year at Rs 3847 Crores up 32.4% from Rs 2906 Croresin for FY 2016-17. Our topline has registered healthy growth with revenue for FY 2017-18 at Rs 14640 Crores agrowth of 25.1% over FY 2016-17 revenue of Rs 11702 Crores
The NII for FY 2017-18 stood at Rs 5785 Crores a growth of 21.3% overFY 2016-17 NII of Rs 4768 Crores Operating expenses for the year stood at Rs 853 Croresup from Rs 713 Crores the previous year.
With increasing penetration of eHome Loans and increasingly digitisedsourcing and underwriting model our cost to income ratio is rapidly declining. Cost toincome ratio for FY 2017-18 stood at an all-time low of 12.5% as compared to 13.3% in FY2016-17 and 14.3% in FY 2015-16. The cost-to-income ratio will continue to decline. Boththe decline in Opex as a percentage of loan assets and credit costs as a percentage ofloan assets have supported ROAs and sustained our topline spreads.
NPAs continue to remain within the guided range of 0.7% to 0.9% forGross NPA and 0.3% to 0.5% for Net NPAs. Gross NPA and Net NPA were down to 0.77% and0.34% respectively from 0.85% and 0.36% a year ago. Including standard asset provisionsand counter-cyclical provisions that are not deducted while computing Net NPA our totalprovisions stood at Rs 1758 Crores translating to a total provision to GNPA cover of185%.
Total Capital adequacy adjusted for investments in mutual funds stoodat 20.68% with tier I at 14.96%. An important risk mitigation strategy is the healthylevel of liquidity that we maintain. Cash and bank balances and current investment of theCompany added up to over Rs 16500 Crores at the end of FY 2017-18. The Company'searnings per share (EPS) stood at Rs 90.51 for this year compared to Rs 68.80 for FY2016-17. The Company has registered a return on equity (RoE) of 30% for the current yearup from 26% previous year.
In November 2015 IBHFL acquired 39.76% stake in OakNorth Bank for $100 Mn. Within two years of operations OakNorth Bank's deposits have risen to $ 825Mn and loan assets crossed the $ 1 Bn milestone to stand at $ 1.06 Bn. In Q3 FY 2017-18IBHFL sold about one-third of its stake to GIC sovereign wealth fund of Singaporefor $ 121 Mn [Rs 768 Crores]; with this partial divestment IBHFL has recovered its entireinvestment in OakNorth Bank made two years ago also making a profit of Rs 542 Crores onthe transaction. Post this sale and other prior dilutions as OakNorth Bank raised equityIndiabulls holds 18.67% in the UK Bank and is the single largest shareholder with twonominees on the board. Thus in two years of investment the value of our holdingappreciated 380%. We shall stay invested as a significant shareholder in the bank toparticipate in the future growth of the bank.
Our shareholders have been our steadfast allies at every step of ourjourney and in keeping with our philosophy of rewarding them for their loyalty andsupport the Company during FY 2017-18 made a dividend pay-out of Rs 41/- per equityshares (with a total outflow of Rs 2099 Crores including Corporate Dividend Tax). TheCompany ranks amongst the top 15 dividend paying private companies in India.
Optimally Diversified Funding Mix
With the upgrade to the highest long-term credit rating ofAAA' from CRISIL and ICRA we now have the highest credit ratings from all fourmajor Indian rating agencies namely ICRA CARE CRISIL and Brickworks.
The year was marked by many firsts on the funding front. In December2017 your Company issued India's first Social Affordable Housing Bond of usedtowards financing requirement of the Affordable Housing sector. The Social AffordableHousing Bond will conform to the Social Bond Principles 2017 issued by the InternationalCapital Market Association (ICMA). The Company has also setup a $1.5 Bn MTN programmethrough which we will tap the offshore market from time to time to optimally diversifyour funding sources and further increase funding efficiencies. With RBI permitting raisingECBs under the automatic route in April 2018 your Company was the first HFC in thecountry to raise $ 240 Mn of ECBs under the automatic route. In all the Company hasraised Rs 26059 Crores of debentures and securities in FY 2017-18 as compared with Rs21321 Crores the previous year.
For the first time the Company's loan sell downs crossed Rs 10000Crores in a year this compares with Rs 4200 Crores in the previous year. We sold down anequivalent of a third of incremental loan assets that we added in the year. At first handwe see strong traction for loan sell downs and this very efficient source of funding makesour funding outlook all that much stronger. Bank borrowings now form 34% of our fundingmix down from 37% last year. Debentures and securities along with ECBs contribute 55% tothe funding mix and sell downs contributed the remainder. Capital market sources alongwith ECB and sell downs have contributed to 75% of the net incremental funding of Rs21636 Crores for the financial year.
Corporate Social Responsibility
As responsible corporate citizens we are aim to positively contributeto the society and leverage on our reach and resources to effect beneficial change. Thisyear we have been further able to extend the reach and impact of our CSR activitiesthrough Indiabulls Foundation. The foundation works for the betterment of the lives of theweaker sections of the society. This year through our fleet of 30 mobile vans we providedmedical treatment to nearly 860000 patients. The Foundation's free DialysisFacility has benefitted 3499 persons so far. The monthly health camps conducted byIndiabulls Foundation have benefitted 5787 individuals till date.
The Foundation also has an emphasis on providing clean and renewableenergy. Towards this Indiabulls Foundation has set up solar electricity plants tofacilitate free of cost round-the-clock seamless electricity to 6 tribal ashram schoolsbenefiting about 4000 students every year. The Foundation has provided free nutritionsupplements to the undernourished children. This initiative has seen 429485beneficiaries since its inception. In a step towards women empowerment the Companythrough Indiabulls Foundation has provided skills training to 600 rural women spanningseven states.
The Path ahead
The Company has successfully transformed itself into a world-classmortgage lender with a diversified product offering. Backed by a strong management teamand cutting edge technology initiatives we shall strive to expand RoE further as theCompany achieves economies of scale and gains market share. I believe that India andparticularly the housing sector will continue to remain on a high growth trajectory dueto supportive demographics macroeconomic factors and government initiated reforms. We arewell-positioned in the huge opportunity that the Indian housing market provides to createcontinuous value for all our stakeholders in a predictable manner as is demonstrated byour track record of growth for past many years. I would like to re-iterate the very strongfocus on providing eHome Loans we think of this as the future of Indiabulls HousingFinance.
Before I conclude I wish to place on record the sincere dedication andhard work of our employees. I am also grateful to our regulators bankers businessassociates and shareholders for supporting us in our continuing journey.
|Thank you! |
|Sameer Gehlaut |
|Founder and Executive Chairman |