Dewan Housing Finance (DHFL) reported in line PAT for Q4FY15 at R160 crore (up 15% y-o-y). Key highlight was the more than 10bps NIMs expansion to 2.9% and AUM growth momentum being sustained above 25% levels .
Cost/income ratio further moderated to 29.7% even as management has initiated steps to rein in the same and continued improving trend will be a key monitorable. Contrary to anticipation of decline, GNPLs inched up marginally to 0.84% (up 7bps q-o-q) — as the increase is largely technical in nature management expects to normalise the same in ensuing quarters. We expect it to sustain loan CAGR of 20% plus, which along with improving NIMs will lead to impressive 25% PAT CAGR and improve RoE to 17% in FY17. We maintain buy rating.
Recent ratings upgrade has provided DHFL wider access to debt at relatively lower cost and enabled it to shift away from high-cost bank borrowings. This helped it improve NIMs for full-year FY15 to 2.9% (versus 2.7% in FY14).
Management expects to reduce its borrowings proportion from current 58% levels to 45% over the next 3 years and have targeted NIMs of 2.9-3%. We expect the structural shift in its borrowing profile towards debt, along with the recent repo rate cut and active sell-downs will help company sustain NIMs.
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