Buy Dewan Housing; target of Rs 275: Emkay

“Dewan Housing (DEWH) Q3FY12 NII at Rs1.83bn (up 48% yoy) was marginally ahead of our estimates of Rs1.75bn. NII growth during the quarter was aided by healthy 50% yoy (10% qoq) growth in loan portfolio. Growth in sanctions/disbursements too came in healthy at 44%/49% yoy. Reported NIM for 9mFY12 stood at 2.78%. Even after providing for Rs150mn towards provisioning (including NHB requirement towards additional provisioning norms), reported PAT at Rs750mn (up 21% yoy) was inline with our estimates at Rs746mn. Asset quality too reported material improvement with GNPA at 0.89% vs 0.97% in Q2FY12.”

“On the balance sheet front: Loan growth at 50% yoy (10% qoq) reaffirms our positive stance on demand potential in tier-II and smaller cities. Over the past two decades, Dewan Housing has gained dominant position in mortgage needs of customers in the LMI segment. Through 300 branches and 137 alliances, the company operates pan- India. 80% of its branches are in the GDP rich states of Western and Southern India and primarily in the under-penetrated regions of tier-II and tier-III cities. Given improving economies of scale and early entry benefit in unaffected region of smaller cities, we expect DHFL to witness 37% CAGR in loans over FY11-13E.”

“During Q3FY12, FBHF net profit at Rs239mn was up 25% yoy. Loan growth momentum remained healthy at 18% yoy with growth in sanctions / disbursements too at steady pace. While GNPA at 0.96% was up sequentially, the management has attributed the same towards one-off time. FBHF made a provision of Rs50mn towards NPA provisioning including additional NHB requirement. FBHF has provided DHFL an edge to penetrate into upper middle income group and primarily in Northern region. Through the consolidated entity, we expect FBHF to leverage on reach and report 25% CAGR in loan over FY11-13E. In a recent move, the board has approved the merger of FBHF and DHFL Holdings with itself. The swap ratio has been agreed upon at 10 shares of DHFL for every 97 equity shares of FBHF; resulting in issuance of 10.9mn shares or 9.5% dilution on consolidated basis. With minority shareholders initial investment in FBHF at Rs3.5bn, the deal is valued at Rs321 per share. We have assumed the share swap deal to be effective in FY13.”

“Strong business model with immense growth potential, stable asset quality and decent return ratios remain key positives for DHFL. Q3 results clearly reflected growth potential in tier-II and smaller cities irrespective of interest rates and property prices. Even asset quality remains far too superior and inline with mortgage leaders (HDFC or LICHF). As consolidated gains scale, we expect the entity to report 33% CAGR in loan portfolio over FY11-13E. Higher cost/income has been compensated in form of better asset quality. However tightened regulatory requirement calls for higher provisioning. After factoring in 19bps of credit cost over FY12-13E, we expect consolidated RoA/ RoE to average 1.6%/23%. Maintain BUY with target price of Rs 275,” says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos

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