Dewan Housing Finance - Growth Momentum Intact; Steady NIMs and Asset Quality; Result Update Q3FY15 :: Edelweiss, report

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Dewan Housing Finance (DHFL) reported in-line PAT for Q3FY15 at INR1.6bn (up 15% YoY). Disbursements maintained momentum logging 22% YoY growth to INR49bn, in turn leading to healthy AUM growth of 28% YoY (to INR526bn). Cost/income ratio moderated to 32.2% (33.1% in Q2FY15) - management has identified operating expenses as potential area of improvement and has initiated efforts to rein in the same – continued improving trend will be a key monitorable. Other operating metrics were stable: 1) NIMs were steady at 2.77% drawing benefits from ratings upgrade; and 2) asset quality was stable (GNPLs at 0.77%). The company has built a lucrative model (bolstered by strategic inorganic expansion) that caters to a gamut of potential customers, portending humungous growth opportunities. We estimate it to sustain loan CAGR of 20% plus, which along with improving NIMs (aided by recent ratings upgrade) will lead to impressive 23% PAT CAGR and improve RoE to 19% in FY17.

Growth momentum sustained

Disbursements maintained momentum moving up 22% YoY to INR49bn. DHFL’s lucrative model catering to entire gamut of potential customers helped sustain AUM growth of 28% YoY to INR526bn. We expect overall AUM CAGR of 22% over FY14-17 to INR820bn, following 22% growth in disbursements during the period.

Some moderation in cost - income ratio

The key monitorable, viz., high cost structure witnessed some improvement in Q3FY15 - mere 8% YoY/3% QoQ growth led to moderation in cost-to-income to 32.2% from 33.1% in Q2FY15. The company also undertook branch rationalisation which saw branch tally falling to 363 from 367 in Q2FY15 (after adding 77 branches post FY14). We expect the trend to continue and cost/income to rationalise to ~26% by FY17.

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https://www.edelweiss.in/research/Dewan-Housing-Finance--Growth-Momentum-Intact;-Steady-NIMs-and-Asset-Quality;-Result-Update-Q3FY15/28054.html