Indiabulls Financial Services’ (IBFS) stock returned 32 per cent in the last one year which is further sweetened by the dividend yield which is in excess of five per cent .

Cheap valuation (close to book value), focus on secured retail lending (especially home loans) and sharp improvement in earnings over the last three years, were the reason for the turnaround in the stock. The stock lost more than 90 per cent of its value from the 2008 peak to 2009 trough and is currently trading at a far lower price.

IBFS has assets under management in excess of Rs 27,000 crore as of June. The company transformed itself by shifting focus from unsecured corporate lending to secured mortgage loans and vehicle loans in the last four years. This has led to improved earnings which crashed to Rs 105 crore in 2008-09 from Rs 580 crore in the preceding year. In the last three years the earnings have grown by 112 per cent compounded annually.

While the rising interest rates put pressure on the cost of funds and thereby margins, the asset quality of the company continued to improve largely due to the exposure to mortgage and also due to lower loan-to-value.

Even as this book has grown aggressively, the non-performing asset ratio is low (0.8 per cent as of June 2012). The stock is currently trading at 1.43 times its June-end book value.

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