Rakesh Jhunjhunwala, the Badshah of Dalal Street, has such a calm and relaxed demeanour at all times that it is hard to imagine him doing mundane things like analyzing Balance Sheets and working out profitability ratios. Yet, the reality is that the Badshah is a stickler for meticulous and in-depth research.
The remarkable aspect is that though Rakesh Jhunjhunwala has the best researchers in his team in the form of Utpal Sheth and Atul Suri, he loves to get his hands dirty by doing the primary research himself.
We have seen live instances of the Badshah standing in queue with other rank and file researchers, waiting patiently for his turn to ask questions from the management and seek clarifications. There are examples of Aurobindo Pharma, Tata Motors and Titan Industries, where the Badshah has stood in queue and shown his enthusiasm for hands-on research.
However, Dewan Housing Finance is an exception to this. In a moment of candour, the Badshah revealed during a chat with Ramesh Damani and N. Jayakumar that he bought Dewan Housing Finance without doing any research and only because it was quoting at a rock-bottom valuation, offered a high dividend yield and was consistently growing at 20% for the last ten years.
“Such ridiculous valuations!!! … What is there to think? So those kind of situations are like invest now, investigate later” the Badshah exclaimed. “Today, it is like meeting Aishwarya Rai, what are you thinking!! You date her without thinking” the Badshah added, much to the amusement of Ramesh Damani and N. Jayakumar.
The Badshah presently holds 100,00,000 shares (post bonus) of Dewan Housing. The holding is worth Rs. 202 crore at the CMP of Rs. 202.
Dewan Housing is presently a bit sluggish owing to the state of the market. It has slumped from a high of Rs. 268 touched on 7th August 2015.
However, this is the opportunity for us to tuck into the stock say leading experts:
Vikas Sethi has foreseen a price target of Rs. 300, which is a whopping 50% upside. His logic is sound:
“I like Dewan Housing Finance. Let me first give you a brief background of the company. This is a leading housing finance company with a focus on relatively smaller towns and cities where competition is less and where demand is also high because the ticket size is small. This company has shown a steady and consistent growth over the past few years and I think this growth is likely to continue for the next few years because of the focus which the government has on housing through its various initiatives like housing for all and smart cities. Also an increase in disposable income in smaller cities and towns would be a big positive for this company and recently the promoters have also increased or allotted to themselves warrants at the rate of Rs 235 per warrant which again will boost confidence in the stock. So I am bullish on the stock and as far as their financials are concerned, this company at the current market price of around Rs 180 which it has corrected from levels of around Rs 270. It quotes at just about 1.1 times its current year book value and if you look at its price earnings multiple, it is close to around 7 on its FY16 earnings which is expected to be around Rs 25 per share. So this is also very attractive compared to its peers. So I am bullish on the stock and I like the stock at the current levels and my target would be Rs 300 in a year.”
Avinnash Gorakssakar is also gung-ho about Dewan Housing though his price target is somewhat modest. His logic is as follows:
“Clearly from the current news flow which is happening on the rate cut front and more importantly the kind of news flow we have seen from most of the central banks globally, it remains quite evident that in the coming credit policy we could see a good rate cut happening and the rate cut could possibly be a 50 bps cut. Clearly housing finance companies like Dewan Housing would be key beneficiaries and already in the budget some good announcements have been made for the housing sector. Interest exemption up to Rs 50,000 has been given to houses worth about Rs 50 lakh where the loan amount is about Rs 35 lakhs and clearly this is a segment where Dewan Housing will benefit significantly because tier two, tier three markets are clearly growing at a healthy clip. Our sense is that loan book growth, asset quality as well as the kind of balance sheet size clearly make Dewan Housing one of the cheapest HFCs. So clearly from a one year horizon, if one were to even buy at a current level the risk reward is pretty good and we could see a target price of Rs 230 odd.”
Angel Broking has issued a crisp initiating coverage report it which it has pointed out that the company is expected to post a healthy loan book CAGR of 20% over FY2015-18E, which is likely to translate into earnings CAGR of 21.3%, over the same period. It is emphasized that the stock currently trades at a cheap valuation of 0.8x FY2018E ABV and that it has a price target of Rs. 270, which is a hefty upside of nearly 35%.
SMC Investments has recommended a buy on the basis that DHFL “continues to perform well on growth and asset quality front. While margins have inched up, Ratings upgrade coupled with reduction in base/wholesale rates are likely to aid margins.” SMC has predicted a target price of Rs. 294 for DHFL.
Some other experts who are bullish about Dewan Housing include Daljeet Kohli and Amar Ambani. Even Dalal Street Investment Journal (DSIJ) has recommended a buy in its latest issue.
Now, we have to wait and watch to see whether these predictions and price targets are realized and if so by when!