DHFL hopes to expand net interest margins to 3%

Dewan Housing Finance Corporation (DHFL) reported a good set of first quarter earnings in FY17. The net profit was up 16.2 percent at Rs 201.4 crore versus Rs 173.3 crore reported for the same quarter last fiscal.The year-on-year (YoY) total income too was up 18.5 percent at Rs 1958 crore versus Rs 1,652.2 crore. The net interest margins for the June quarter came in at 2.91 percent and gross NPAs stood at 0.98 percent at Rs 623.8 crore. Throwing more light on the numbers, Kapil Wadhawan, CMD, DHFL told CNBC-TV18 that the earnings momentum witnessed in Q1 would continue for the next couple of quarters. He said the growth rate for the company was always above industry levels.The company has an aim to keep net interest margins at 3 percent levels. Currently, they range between 2.8 and 3 percent.  Moreover a cut in interest rates if it comes through in the next monetary policy, it would help their margins, said Wadhawan.When asked if project financing was putting pressure on asset quality, he said as of today, they haven't been any undue surprises from that segment. Project financing is only 10-12 percent of their portfolio, he said.Below is the verbatim transcript of Kapil Wadhawan’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: Can you start off by telling us how the quarter look because the numbers were quite good and is this growth of about 20 percent in your assets under management (AUM) is that something that you could look to achieve through the course of the fiscal?A: Backed by decent demand in tier two, tier three markets smaller town cities where we have a strong presence in and our focus on the lower and the middle income segment we were able to showcase this growth while concerns still remain on the demand in the bigger cities including Mumbai, Delhi etc. But then the latent demand in smaller towns surely has lead to this performance. In fact our Q1 disbursements are up by 25 percent from at Rs 6,200 crore our approvals are up by about 12-13 percent at Rs 8,800 crore. So, yes, overall demand in smaller towns and cities has lead to this good performance in the first quarter.Anuj: Really strong numbers on all parameters. Disbursements, sanctions, net profit growth. Can we extrapolate these numbers, that is the big question for the market?A: We have been having a sustainable run over the last many quarters rather a couple of years where DHFL\\'s growth rate has been above the market growth rates, the growth rate of the industry. We believe that it is possible to continue this strong momentum in the first Q earnings over the next three quarters as well and come up with a sustainable net interest margin (NIM), come up with strong assets under management as at March 31.Sonia: Your cost of borrowings has been down and that has helped you in maintaining your NIMs. This time it is about 2.9 percent or so. Can you tell us what the trajectory could be for margins for the rest of the year?A: We have been maintaining a stable margin and again very much range bound, starting from anywhere between 2.8 to 3 percent. Obviously the intent is to take this margin up to closer to three percent and yes, which we believe will be an important monetary policy announcement going forward where we expect interest rates to come down. These margins should expand further. In fact our spreads have been fairly stable and good at more than two percent. So, yes, close to three percent NIM is somewhere which will probably be a good NIM to go after.Sonia: For the past couple of quarters Dewan Housing has been increasing its share of project loans compared to individual loans and project loans are generally perceived to be a bit risky. Tell us going ahead how much will project loans contribute as a part of your total AUM growth and would that put any kind of pressure on your asset quality?A: Our asset quality has always been extremely good. Our project financing in the last few years also has not given us undue surprises. In fact our project finance portfolio currently stands at less than 10 percent in the overall portfolio. So, maintaining a stable 10-12 percent kind of range we believe we will be able to get better margins, one and second, even have a good sustained asset quality as well. Our focus in smaller towns even for project loans is seen as a big differentiator as compared to some of the other market participants.Anuj: How is cost of fund shaping up? You have recently launched your corporate deposit scheme as well?A: The corporate deposit scheme was launched just recently and is brand new. The response has been encouraging and we believe that over the next couple of quarters, we will see a lot of inflow of funds coming into that scheme. But more importantly we are coming out with a large public issue of non-convertible debentures (NCD) which hopefully will hit in the first week of August. The base price being a Rs 1,000 crore with the right to retain oversubscription of another Rs 3,000. So, the response or the feedback that we have so far from our merchant bankers is extremely positive. It does give us an opportunity to one, diversify our source of funding and also look at reduce cost of money. In fact, incrementally, for the first quarter the money raised was at an extremely low rate of 8.7 percent.