Dewan Housing Finance Ltd (DHFL) Research Report By Angel Broking

Dewan Housing Finance (DHFL) posted an impressive operating performance yet again in 4QFY18. The HFC’s business grew in the quarter with a 28% yoy rise in loan book to `91,932 cr. In line with it, AUMs also increased by 33%yoy in the quarter.

At the bottom line, the company’s net profit grew by 26%, aided by steady growth of 25% in net interest income, a surge of 70% in other income and a reduction in cost with respect to income, which decreased by 120 bps to 25.4%.

Asset quality intact even when advances surge

During 4QFY18, the company’s AUM grew by 23%, 57%, 42% and 61% in home loans, LAP, corporate loan and SME loans, respectively.

Aggressive growth is witnessed in LAP as the interest rate is higher than that of home loans. This increasing concentration on LAP helps the NIM to be at 3% even with competitive rise in total loans and other assets.

Off balance sheet, AUM stood at 17% of total AUM as of 4QFY18. The company’s loan book also increased simultaneously. On yoy basis, disbursements and sanctions spiked by 85% and 81%, respectively.

Added to this, borrowings increased by 11.3%, while the cost of funds was almost same. The mix in borrowing remained largely unchanged with banks accounting for 42% of total borrowings, followed by capital markets (40%) and others (18%).

Even when the loans and advances soar, DHFL is careful about its asset quality. The company maintains an excellent asset quality with GNPA at 1% of the advances and NNPA at 0.5% at the end of 4QFY18. The company increased provisions by 57%yoy and 30%qoq.

Outlook & Valuation:

We expect the company to post a healthy loan book CAGR of 28.5% over FY2017-20E, which is likely to translate in earnings CAGR of 28%, over the same period.

At the current level, the stock is valued at 1.8x FY2020E ABV. We maintain BUY on the stock, and retain our target price of Rs740.