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Sell Indiabulls Financial Services – Goldman Sachs and Citigroup

July 28, 2008

Indiabulls Financials Q1FY09 profits were down 22% QoQ (+29% YoY). The sharp reduction in profits was largely due to lower IPO funding opportunities, higher cash on books (earning negative carry) and lower loan yields (change in loan mix). Revenues declined 3% qoq at Rs5.6bn; operating income net of interest expense was down 11% qoq to Rs3.3bn owing to
higher financing costs.

The Management has guided a 50-60% loan growth [down from 100% earlier] due to challenging environment. The company is reducing exposure to unsecured loans (15% of loans); increasing exposure to mortgages (50%), commercial credit (20%, backed by real estate / securities) and loans against securities (10%).

The Mgmt has guided EPS for FY09 to be between Rs27-30, much lower than Bloomberg consensus of Rs38 and our estimate of Rs33. Goldman Sachs and Citigroup both have a SELL recommendation on the stock with a price target of Rs 280 and Rs 230 respectively.

DalalStreet.Biz Analyst View: Since this stock is in the hands of strong speculators, we advise existing investors to wait and exit on rally. You may then consider entering strong PSU banks like PNB, BOB or HDFC Bank.

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