Why Indiabulls Housing Finance Share Price is Falling

Indian stock markets have been under acute selling pressure lately. Sharp declines in the benchmark indices have become routine.

The bulls were just getting used to the market going up ever since it bottomed out in March 2020. But now the bears are in control.

There has been a change in sentiment. Some are even talking about a full-fledged bear market.

Inflationary concerns, monetary tightening, elevated crude oil prices, geopolitical crisis, lofty valuations, depreciating rupee, and constant FII outflows are the key reasons which are hurting the sentiments.

Amid this backdrop, the stock-specific declines are even steeper.

Indiabulls Housing Finance is one such stock which is down 46% in 2022 so far. Currently, the stock is trading only 13.6% away from its 52-week low.

Here are a few reasons that's dragging the stock down...

#1 Huge changes in shareholding pattern

Promoters, domestic institutional investors including mutual funds, and foreign investors (FIIs) are the big movers and shakers of the market.

And when they sell or buy any shares, investors are all ears.

During the March 2022 quarter, institutional holding in Indiabulls Housing dropped from 43.3% to 39.9%.

That's not all. Promoters have also decreased holdings from 9.7% to 9.6%. In September 2021 the promoter holding was 21.7%.

Foreign institutional investors (FIIs) also remained net sellers during the quarter under review. FIIs decreased their stake in the company by over 2%.

It's assumed that institutional investors have better analytical skills than an average retail investor. Thus, their actions impact the market sentiments widely. They also usually trade in large volumes intensifying such impacts.

Similarly, promoters are perceived to have greater insight into the company. So, when promoters sell their stake, it is extensively presumed that something is not going well for the company and the markets witness panic selling.

During December 2021, post the announcement of founder and promoter Sameer Gehlaut's resignation, Indiabulls Housing Finance share price had slipped over 12% in a single day.

Gehlaut had offloaded nearly 12% stake in the firm through promoter companies to make it a fully professionally managed entity.

#2 Weak fundamentals

According to the company's website, Indiabulls Housing Finance is the country's third largest housing finance company with a balance sheet of Rs 0.82 tn as on 31 December 2021.

The company is present in 92 towns and cities across India.

The following table shows that the revenue, net profit, and operating net profit have been declining for the past two financial years.

	2018-2019	2019-2020	2020-2021
Revenue (Rs bn)	170.2	132.2	99.3
Revenue Growth (%)	30.3%	-22.3%	-24.9%
3-year CAGR (%)	-11.8%
Net Profit (Rs m)	40,905	21,998	12,016
Net Profit Margin (%)	24%	16.6%	12.1%
3-year CAGR (%)	-32.2%
Operating Profit (Rs m)	56,146	26,613	15,557
Operating Profit Margin (%)	32.9%	20.1%	15.7%
3-year CAGR (%)	-8.5%

Source: Equitymaster

Also look at the key fundamental ratios that have seen a downward trend in the past few years.

	2018-2019	2019-2020	2020-2021
Return on Assets	3.1	2.1	1.3
Return on Equity	25.1	14.3	7.5
Net NPAs	0.7	1.8	1.6

Source: Equitymaster

These figures don't paint a positive outlook for the company's growth and profitability.

To know more about the company, check out Indiabulls Housing Finance's financial factsheet and its latest quarterly results.

#3 Brush with law enforcement agencies

Several public interest litigations (PILs) and first incident reports were filed against the company back in 2019, alleging irregularities, siphoning of funds, and other violations committed by the promoters of the company.

Based on those allegations, the market regulator's corporate finance investigation department had started an investigation against the company in early 2020.

After concluding its detailed investigations, the regulator informed the company of non-compliance related to availability of certain information on website of the company and internal policy of the company.

However, the watchdog has not found any wrongdoing on part of the company with respect to the specific allegations made against it in the various public interest litigations and the complaints.

The ministry of corporate affairs had also looked into the books of the company following the complaints and stated that the PILs raised concerns and allegations based on loans extended by Indiabulls Housing Finance to DLF, Amricorp, ADRG, Vatika, and Chordia.

In February 2022, the Enforcement Directorate (ED) raided Indiabulls Finance Centre acting on a complaint of money siphoning against Indiabulls Housing and promoter Sameer Gehlot, among others.

Continuing investigations and raids keep the stock volatile as it dampens investor sentiments.

#4 F&O Ban

The company's on and off love affair with F&O bans continues. There have been instances in the past where the company was placed in an F&O ban.

An F&O ban prevents trading in the stock that is in the ban list. This is done to control volatility. This could be a reason why the stock has fallen lately as when a company is placed under this list, there are restrictions on trades.

Earlier this month, Indiabulls Housing Finance was banned from trading in the F&O segment by NSE. On the same day, it fell around 20%.

The road ahead for Indiabulls Housing Finance...

The company is scheduled to announce its March quarter result this week on 20 May.

The company has yet again posted negative growth in revenues and profits for the three quarters of financial year 2022.

The performance of the company in the last quarter and financial outlook for the year ahead will be crucial.

It remains to be seen if the company will surprise the street by reporting good numbers or the weak run will continue.

We will keep you updated on what's brewing in the company and its latest developments. Stay tuned.

In the meantime, you can compare the company with its peers to see the performance.

Indiabulls Housing vs Aavas Financiers

Indiabulls Housing vs Indostar Capital

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...