Shipra Mall in Ghaziabad’s Indirapuram Sold For 551 Crore (cityspidey.com)
Any effect of this on share price possible? Rapid descaling of wholesale Loan Book has happened till now. If this continues and there are no hidden NPAs, we can see atleast 2x return in a couple of years.
But only insiders (top management knows about it). If there are no hidden NPAs, I would expect the top management to buy lots of share at this price, but dont see that happening right now.
my concern about this company is two fold from value investing perspective
99% of business is done by 2 companies (parent and ICCL) - Housing loan done by parent and loans not classified as homeloan are done through ICCL. If you ignore these two, then there is some subsidiaries related to AMC which is sold to Groww. You will not see this in AR23. Pragati Employee welfare trust just holds the shares of the company itself [you can find this in shareholding pattern]. Management further mentioned in Q4FY23 call that this structure will get cleaned this year
Dear Sidharth,
thank you for your quick response. Well explained about Subsidiaries
regards
Raghu
When i see the reported comprehensive profits for the year FY21, FY22 and FY23, company reported cumulative comprehensive profits of 2937 crores. In these 3 year periods, they paid divided of 417 crores in FY21, there is no equity raise happened during these years. So approx equity of company should have raised atleast 2500 crores from the end of FY20 to end of FY23. But equity did not raise in sync with profits.
When i am looking into equity statement, the difference in equity is explained by Utilization of Additional Reserve Fund (U/s 29C of the National Housing Bank Act, 1987) towards the provisions creation. Difference in provision creation via regular mode vs utilizing this fund is, there will not any trace of this utilization in P&L statement.
Assume a case where company chooses to create 10 crore provisions and it has final profit of 25 crore (excluding this provision) , usually companies will book this 10 crore under Impairment of financial instruments in P&L statement, so final profit will reduce by 7.5 crores(assumed tax at 25%) and the profit will be 17.5 crores. But if company chooses to use the amount from this reserve fund, In P&L statement, you will not see 10 crores under impairment and profit does not reduce will remain as 25 crores.
Now coming to this reserve fund, This is mandated by RBI to create this fund(i think it is 20% of profit) from every years profit before paying any dividend to shareholders. You will see all finance companies contributing to this fund every year from their reported profit. This fund will be used by companies in a worst case scenarios like covid, bad economic cycle.
But what’s happened in indiabulls is they create this fund in year 1 and they utilize this amount in year 2 itself and whatever they are creating in year 2 will be used in year 3. The pattern usually followed by all other companies and even in case of indiabulls before 2018 is they contribute every year, but they will use it rarely in one or two years, only in case of bad events.
Added 825 crores in FY21 to the fund
used 825 crores and create 525 crores in FY22
used 525 crores in FY23 very first quarter itself [Waiting for FY23 AR to see if they created further]
I don’t know why indiabulls chooses to create this fund and utilizes it very next year. By doing so, they are optically showing higher profit in P&L statement. Instead if they reported this as impairment in P&L, they reported will be much lower.
Disclosure: 1% of portfolio. These are not allegations against management and what they did is well within law. Point I am making is this approach of reporting profit and using reserve fund to increase provision seems very odd to me
Auditors have highlighted your point of not charging to PNL in their emphasis of matter…but have not modified their opinion …it is bypassing the pnl and inflating profits…not sure how other companies report…will need to check
I am a bit confused on this and have a few questions.
1.) Is the fund added in Additional Reserve Fund part of equity or not? (I think it is)
2.) Is the fund they are using next year going out of equity??
3.) What are the tax implications of this method? I see Indiabulls is paying tax according to its profits. When they use Additional Reserve Fund, are they taking tax breaks there?
4.) Are they paying extra tax to show profits? (which are not even present). Then it would be extremely wrong.
Shouldnt the Impairment funds utilised be shown in PNL account? Or am I wrong?
Yes
yes
I am not 100% sure, but when i look P&L, i dont think they are getting tax breaks for this
No they are not paying additional tax to show profits
In this case, No. This is as per RBIs master direction circular
If they are not getting any tax breaks for what they are writing off by utilising impairment reserve, and they are paying taxes on profit, isn’t this same as paying extra tax?
Not sure, maybe deferred tax comes into equation?
I am in the same boat. They look cheap, the management has been walking the talk for the last few quarters. I can see stage 2/3 assets being resolved. Are you purely invested based on a discount to book value?
What about the growth prospects going forward? I have a query about the niche IBH operates in. Why would a borrower go to IBH over HDFC/ICICI Bank or a PSU or other housing finance NBFCs? IBH were the largest HF NBFC, so the management has a track record in scaling out, but can they repeat itself? Is it the reach in hinterland (tier 2 and 3 cities) or the reduced documentation ask?
Also on the other avenue of growth their AIF fund, is there a similar opportunity here where banks and NBFCs have vacated the developer financing space. I see similar other platform that builders are using?
Does management have skin in the game? ESOPS? If management’s interest and shareholder’s interest are aligned then we can be less anxious. ITC LTD is another company with zero promoter holding so this might not be an issue.
It seems that finally the time has come for IBULHSG to start performing again!!!
Biggest positive change is the management change. Corporate Governance will improve further once they become a part of NSE PRIME.
I noticed that Matthew Cyriac has been holding more than 1% shares in the company. His name appeared in June 2023 SHP. He was invested in GokalDas where he made 7-8X and he was invested in MTAR as well where he made over 10X.
Currently they are further cleaning their balance sheet. They will further get 35000 crores of money to expand their business.
Hoping for the best days ahead for this counter!
Can you please elaborate in this? From where they will get 35000 crores.
You are referring this because stock price moved or business picked up after FY23
Check exchange Filings…they are planning to raise 35000 via debt. So the new promoters or FII/FPIs coming on board will infuse that money.
My guess is as they know in and out of company now…its perfectly fine for them to get a secure return . they would be having first hand knowledge of where company is heading.
No I am not referring to stock price… Stock price as we all are aware that its derivative of business.
What I understand is that over the last few years…their balance sheet has become clean , their NPA’s are coming down , they are making arrangements to prepay the debts / FCCB which are due in next few quarters.
Ofcourse their profitability is down as well but that mostly because they are repaying debt, reducing their overall business, making it more efficient /profitable.
Now they are into stage where their employee strength is increasing again. All they need is money to expand their business which will come via those 35000 crores.
Eventually their profitability will increase.
In the rebranding exercise, it will add credibility to the Corporate Governance. Further, they have applied for NSE Prime which focuses on higher disclosures for CG adding to transparency.
All in all, things are improving in right direction. Rerating is on cards…P/E , P/B multiples are on lower side, even from the historical average perspective.
I expect them to go past average and move towards higher side of range!!
I only hope they don’t turn out like DHFL. I might be comparing apples to oranges but finance companies have always been hard to evaluate because we don’t really know how their loans turn out.
There are less chances for it to be like DHFL… Their NPA is coming down consistenly…They are very regular in paying their debt i.e interest + principal of NCDs.
They are even making arrangements to prepay.
Their NPA are consistently coming down
On top of that , if anything like that had to happen… it would have been exposed already in the last couple of years…
FII/FPIs are evaluating books for last few years , finding everything okay they are committing 35K additional money
Rest there is no guarantee… anything can happen…Its game of probability.
The updates from the latest concall is a testament of the company embarking on a new journey of being asset light model with early repayment of entire FCCB debt, complete promoter exit, professionally run management, renaming and rebranding exercise, guidance of mid-teen Roeby FY26, d/e ratio of 1.8, p/b of 0.4, AUM growth guidance from Q324…Given the current valuations and all the headwinds behind, this stock deserves a benefit of doubt!
Additionally, if anyone noticed
Now a days NBFC / NBFI’s and getting into Co lending — FLDG model (basically de-risking the Banks partially)
This provides multiplier effect to NIMS .
Consider UGRO , Muthoot Cap and many others .
——I am invested in this as portfolio stock 3.5 percent allocation 3-5 years .
