Buy Dewan Housing Finance Corporation; target of Rs 743: Cholamandalam Securities

Cholamandalam Securities' research report on Dewan Housing Finance Corporation

DHFL’s AUM grew to INR 1.11tn in 4QFY18 (32.9%YoY, 9.7% QoQ). Disbursements continued to grow sharply at 81.3%YoY and 45.4% QoQ. Off balance sheet AUM stood at 17% of total AUM as of 4QFY18. Going forward, the management expects loan book to grow by 20-24% p.a, while disbursements would grow by 28-30% p.a till FY20E, predominantly driven by focus on affordable housing and SME segment. Growth in loan portfolio was largely led by SME (77.3%YoY), LAP segments (56.4%YoY) and Project Loans (42.4%YoY) whereas Home loans segment showed a steady growth of 22.9%YoY. Consequently, their share in the overall portfolio was noted at Home loans: 61%, Project Loans: 15 %, LAP: 20% and SME: 4%.  Borrowing stood at INR 927.2bn, with the mix largely unchanged sequentially; banks accounting for 42% of total borrowings, followed by capital markets (40%) and others (18%). While cost of funds was largely stable QoQ/YoY at 8.84%, calculated yield on AUM declined 35bp QoQ (-130bp YoY) to 10.0%. DHFL’s NII showed a healthy growth of 24.4%YoY to INR 6.67bn for the quarter. NIMs fell marginally by 1bp YoY to 3.03% (remained flat QoQ). The company has taken a 20bps increase in prime lending rate from April 2018 and expects NIM to remain in the range of 3- 3.05% till FY20E.

Outlook

The stock is currently trading at P/BV of 1.8X, P/E of 10.6X FY20E. Healthy growth in loan book, improving cost of funds on account of change in borrowing mix, improving cost efficiency and stable asset quality paints a positive picture for DHFL, hence we maintain BUY rating and upgrade the target price to INR 743 (Prev. Target of INR 721), assigning a P/BV 2.1X of FY20E.