Dewan Housing Finance (DEWH IN) - Re-rating on sale of stake in life insurance subsidiary - CSEC Research

Re-rating on sale of stake in life insurance subsidiary

- DHFL's AUM grew (20.2%YoY, 6.7%QoQ) to INR 835.6bn in 4QFY17. Disbursements showed a pick-up sequentially (23.2%YoY as impact of demonetization normalizes). Average ticket size for the quarter was noted at INR 1.4mn Vs INR 1.38mn in 3QFY17. Off balance sheet AUM stands at 14% of total AUM as of 4QFY17.

- Growth in loan portfolio was largely led by Project Loans (77%YoY) and SME (59%YoY) and LAP (29%YoY) whereas segment Home loans (9%YoY) showed a steady growth. Consequently, their share in the overall portfolio was noted at Home loans- 65.8%, Project Loans- 14%, LAP- 16.9% and SME- 3.3%.

- Borrowing stood at INR 813bn. The company is on track in reducing its share of high cost bank borrowings while correspondingly increase the share of NCDs (~42%). The company reduced its dependence on bank borrowing (from 68% in FY13 to 41% in 4QFY17) and has tapped into the lower cost bond borrowings (from 20% in FY13 to 42% in 4QFY17). Management has highlighted its intention to reduce its share of borrowings from bank to ~30% and Debt Capital Markets to ~40% and the balance from NHB, FDs etc.

- DHFL's NII showed strong growth at 31%YoY to INR 6.3bn for the quarter. NIM increased by 14bps YoY to 3.04% which was majorly driven by reduction in the cost of funds. Cost of funds reduced by 84bps YoY to 8.83%.

Valuation: The stock is currently trading at P/BV of 1.4X, P/E of 9.9X FY19E. Healthy growth in loan book, improving NIM on account of change in borrowing mix, improving cost efficiency and stable asset quality paints a positive picture for DHFL, we maintain BUY rating and upgrade a target price of INR 510 (Prev. Target of INR 370), implying a P/BV 1.7X of FY19E. Risks: Slowdown in housing and stress in project loans.

Shares of DEWAN HOUSING FINANCE CORPORATION LTD. was last trading in BSE at Rs.432.05 as compared to the previous close of Rs. 437.9. The total number of shares traded during the day was 349598 in over 5436 trades.

The stock hit an intraday high of Rs. 443.9 and intraday low of 424. The net turnover during the day was Rs. 151458262.

Source : Equity Bulls

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