SPA Research`s view on Dewan Housing

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SPA Research`s view on Dewan Housing

SPA Research has come out with its report on Dewan Housing.

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SPA Research has come out with its report on Dewan Housing .

"Recently we met the management of Dewan Housing Finance Ltd. (DHFL) to get an update on company's business and the impact on loan book & margins due to recent events in the industry. With a consolidated loan portfolio of ~USD 4.5bn (as on FY11), it is the third largest housing finance company in India. DHFL caters mostly to lower and middle income groups with avg. loan ticket size of INR 0.7mn. After the acquisition of First Blue Home Finance (FBHFL) and tie up with banks, company now caters to customers across all income levels and across geographies in India."

"DHFL's reported strong 5 year CAGR of 44% in its standalone loan book at INR 141bn in FY11. This is on the back of lower penetration of mortgage in India and companies aggressive expansion to tap substantial demand in tier II and tier III cities (80-85% loan book contribution). Company has more than doubled its branch presence in last 3 years to 437 aided by acquisitions and alliances. DHFL has formed alliances with United Bank of India, Punjab & Sind Bank, Central Bank of India and Yes Bank to expand its loan portfolio and regional presence that would aid the overall growth in the loan book. Loan book in 9MFY12 grew by 50% YoY to INR 185bn. Management aims to maintain 35% loan book for next 4-5 years."

"DHFL reported a fall of 18bps in DHFL's NIMs from 2.96% in FY11 to 2.78% in 9MFY12. Management expects headwind to persist in the short term on the back of higher cost of borrowing and margins may see further erosion in Q4FY12. Borrowing cost has increased by 110bps to 10.83% in 9MFY12 against 9.73% in FY11. Company does not expect significant contraction in margins with introduction of new NHB regulations in Oct 2011 that asked housing finance companies (HFCs) to scrap pre-payment penalty on pre-closure of housing loans and to charge uniform interest rates for old and new floating rate home loan customers. There would be a loss of INR 80- 90mn income that company generates from pre-payment charges. There is an avg. spread of 50-75bps on the interest charged to new and existing customers. However, margins are expected to improve with easing of monetary policy stance. By the end of 3 years, company expects to increase the share of borrowing from NHB from 7% currently to 25% which provides funding at lowest cost among present sources which will reduce overall cost of borrowings."

"Housing finance sector is one of the fastest growing sectors in India (at 4 year CAGR of 16.5%) on the back of increasing aspirations of young generation supported by robust residential construction activities. Housing finance companies have shown stronger growth compared to banks by increasing their share in disbursement for housing finance from 36% in FY07 to 51% in FY11. DHFL which caters to lower & middle income groups has shown strong disbursement growth riding the higher demand in tier II and tier III cities. After acquisition of FBHFL and tie up with banks, company is geared to cater consumers across the spectrum and is well poised to gain with the growth in mortgage market in India. At CMP, stock is trading at 0.93x FY12E consolidated BV of INR 220 (Source: Bloomberg Consensus).

Public holding more than 90% in Indian cos

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To read the full report click on the attachment