Buy DHFL; target of Rs 743: Cholamandalam Securities

Cholamandalam Securities' research report on DHFL

DHFL’s AUM grew to INR 1.21tn in 1QFY19 up by 37.1%YoY, 8.9% QoQ (vs. CSEC estimate of 31.1%YoY). Disbursements continued to grow sharply at 64.9%YoY. Off balance sheet AUM stood at 17% of total AUM as of 1QFY19. Going forward, the management expects loan book to grow by 20-24% p.a, till FY20E, predominantly driven by focus on affordable housing and SME segment. Growth in loan portfolio was largely led by SME (71.3%YoY), LAP segments (73.4%YoY) and Project Loans (49.2%YoY) whereas Home loans segment showed a steady growth of 23.5%YoY. Consequently, their share in the overall portfolio was noted at Home loans: 59%, Project Loans: 16 %, LAP: 21% and SME: 4%.

Outlook

The stock is currently trading at P/ABV of 1.9X, P/E of 10.5X 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 maintain the target price at INR 743, assigning a P/ABV 2.1X of FY20E.

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