Dewan Housing Finance Ltd: Strong business at attractive valuation – BUY CMP Rs432, Target Rs570, Upside 32.0%
Dewan Housing Finance (DHFL) is a niche housing finance company (HFC) focused on low and middle income (LMI) housing market with an extensive network in Tier 2 and 3 cities. Its loan portfolio has registered 39% CAGR during FY12-15 making it one of the fastest growing HFCs in India. Company’s loan book and AUM stood at Rs. 51,040cr and Rs. 56,900cr respectively as of FY15. The GoI’s ‘Housing for All by 2022’ and ‘100 Smart Cities’ initiatives should substantially expand the addressable market for DHFL going forward. The recent interest subvention policy for economically weaker sections (EWS) indicates some real progress by GoI. We expect DHFL to deliver a better-than-industry AUM CAGR of 21.5% over FY15-17.
With stock trading at 1x FY17 P/ABV, DHFL’s valuation is alluring not just because it is at significant discount to the industry but also in the context of company’s strong sustainable profitability (1.4% RoA and 17-18% RoE). Initiate coverage on DHFL with 12-month price target of Rs. 570.