Moneycontrol
Oct 19, 2016 03:54 PM IST | Source: Moneycontrol.com

DHFL surges 18% in 4 days; Nomura raises target after Q2 nos

Dewan Housing Finance Corporation (DHFL) shares hit a record high of Rs 334.70, up nearly 18 percent in four consecutive sessions. While maintaining buy rating on the stock, Nomura raised target price Rs 375 per share from Rs 250 after September quarter earnings.

 
 
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Dewan Housing Finance Corporation (DHFL) shares hit a record high of Rs 334.70, up nearly 18 percent in four consecutive sessions. While maintaining buy rating on the stock, Nomura raised target price Rs 375 per share from Rs 250 after September quarter earnings.


"Target price implies 1.5x September-18 book (9x September-18 EPS), which is still a 30-40 percent discount to LIC Housing Finance (where it has a buy call)," the brokerage house says.


While DHFL has been rerated in the past six months, Nomura thinks current valuations still look reasonable as it expects return on equity to improve to 16 percent by FY18.

It increased its FY17/18 profit estimates by around 8-10 percent on the back of improving operating expenses ratios and net interest margin (NIM).


DHFL's Q2FY17 profit grew by 29 percent YoY to Rs 233 crore, which was a 10 percent beat to Nomura's expectations, led by improving NIMs and operating expenses ratios.


The brokerage house expects company's recent bond raise (bond mix up 11 percent) to aid margins. Also, operating expenses ratios have been improving for the past 3-4 quarters now with the management focusing on reducing cost. The management is taking the right measures to improve its capital allocation.


Overall, Nomura believes these steps will lead to an improving return on equity profile for the company.


Improvement in Q2 NIM (up 10 bps QoQ) was led by an improvement in bond mix and a decline in funding costs (especially bank funding costs). The asset mix has also been improving, with the non-retail mix now forming 30 percent of AUM (500-600 bps increase in the past year).

At 11:56 hours IST, the scrip of Dewan Housing Finance Corporation was quoting at Rs 332.80, up Rs 8.95, or 2.76 percent on the BSE.

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