Edelweisis maintains ‘Buy’ on Deewan Housing Finance; target price Rs 374

By: | Published: January 19, 2017 6:05 AM

Dewan Housing Finance’s (DHFL) Q3FY17 PAT, at R2.45 billion (up 32% Year-on-Year), was marginally better than our estimates owing to better NIMs (broadly stable Quarter-on-Quarter versus expectation of decline).

Dewan Housing Finance’s (DHFL) Q3FY17 PAT, at R2.45 billion (up 32% Year-on-Year), was marginally better than our estimates owing to better NIMs (broadly stable Quarter-on-Quarter versus expectation of decline). Disbursements’ growth was soft, up 10% Year-on-Year versus historical trend of 25% Year-on-Year growth, however demonetisation impact was lower than envisaged, feeding into AUM growth of 18.7% year-on-year/4% Quarter-on-Quarter. Asset quality was stable with GNPLs contained below 1%. Cost/income ratio, a key monitorable, was also broadly stable with opex growth curtailed at 9% Year-on-Year. Valuation at 1.3x FY19E P/ABV is inexpensive for RoE of 16% plus.

DHFL’s focus on productivity has seen it improving in past year or so (26.4% versus 31.8% in Q4FY16). While cost reduction seems to be on track led by improving efficiencies and technology initiatives, sustenance of same is vital.
DHFL is bound to be key beneficiary of government’s initiative to promote affordable housing, given its presence in tier II/III cities and lower ticket size. However, in view of rising proportion of developer loans, we are building in higher NPLs going forward. The company has the potential to deliver 20% earnings CAGR over FY16-19E with RoE of 16%. Juxtaposing this with inexpensive valuation (1.3x FY19E P/ABV) renders favorable risk-reward. We maintain ‘buy/SO’ with a target price of R374.

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