DHFL’s 2QFY17 performance was driven by strong (20%) loan growth and improvement in operating expenses ratio to 25% from 27% in Q2FY16. We find near-term upside to NIM although we are cautious of the medium-term implications of the large NCD issuance. We will revisit our current view (buy; TP `250) post the conference call on Tuesday.
DHFL reported PAT of `2.32 billion, up 29% y-o-y. The company reported 21% growth in NII on the back of 20% growth in AUMs to `752 billion. Cost to income ratio improved to 25% from 27% in Q2FY16 and Q1FY17. GNPL ratio was stable at 0.96%.
DHFL’s loan growth continues to slow down with 20% y-o-y growth, a steady decline from ~28% y-o-y growth seen about a year ago. Growth has been increasingly driven by non-retail home loan segments. The retail home loan segment grew only 12% yoy in Q2FY17, steadily declining from 23% y-o-y in Q2FY16, clearly indicating the sluggishness in the mortgage markets. Share of retail home loans has declined to 70% from 75% a year ago. On the contrary, developer loans have grown at 2.2X yoy (23% q-o-q), leading to its share doubling to 12% of AUM over last one year.
DHFL’s calculated NIM expanded to 2.67% from 2.58% q-o-q, almost stable y-o-y. This was driven by both reduction in borrowing costs and (2) higher asset yields in the non-retail segment.