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More from less. Our forecast of 22% loan-book CAGR in FY2014-17E for DHFL puts
the book at `814 bn by FY2017E. Our estimates are propelled by improving execution
and significant untapped mortgage demand. DHFL’s stable business model and 17%
medium-term RoE with negligible NPL risk make it an attractive long-term bid. We
expect a rerating on the back of the management’s efforts to address investor
concerns. We initiate coverage with a BUY rating and a target price of `540.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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The long haul: Reach and attractive mortgage rates to drive growth
Dewan Housing Finance (DHFL) is India’s third-largest housing finance company (4% market
share in housing loans) with a loan book of `494 bn, as of September 2014. We expect the
company to deliver 22% loan-book CAGR during FY2014-17E on the back of aggressive branch
expansion and lower lending rates in mortgages that will drive market share gains. We expect
the company to benefit from (1) recent tie-ups with developers in tier-I and tier-II cities that
drive higher yields and lift retail business and (2) lower borrowing costs post the recent rating
upgrade.
Attractive valuations; expect a rerating
At 7X PER and 1.1X PBR FY2016E, DHFL trades at a significant discount to peers. We attribute
this to (1) lower profitability, (2) constraints on capital, (3) investor concerns about multiple
acquisitions and the promoter group. We expect a rerating of the stock given (1) high growth
visibility and (2) steps taken by the management to address investor concerns (eliminating crossholdings
with HDIL, induction of group management committee).
Stable RoE of 17%, NPLs negligible though constraints on capital are likely
We expect DHFL to deliver 18% EPS CAGR, 1.2-1.3% RoA and 17% RoE over FY2015-17E.
Stable interest spreads (i.e. lower lending rates supported by reducing borrowing costs), stable
operating expenses ratio and negligible NPLs are key drivers. Expansion initiatives can drive
higher growth but high leverage (average asset-to-equity ratio of 14X by FY2017E) is expected
to be a constraint. Unlocking value in the insurance JV can boost tier-I.
Key risks—heavy dependence on capital markets, risk of downgrade, developer NPLs
(1) DHFL is heavily dependent on debt and equity markets against a backdrop of high growth
and moderate RoE, (2) any rating downgrade poses a risk to profitability and to the business
model, especially given its low NIM, (3) fast growth in the developer loan book can lead to
higher NPLs and (4) diversification into multiple business lines cramps management bandwidth.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily09012015ay.pdf
More from less. Our forecast of 22% loan-book CAGR in FY2014-17E for DHFL puts
the book at `814 bn by FY2017E. Our estimates are propelled by improving execution
and significant untapped mortgage demand. DHFL’s stable business model and 17%
medium-term RoE with negligible NPL risk make it an attractive long-term bid. We
expect a rerating on the back of the management’s efforts to address investor
concerns. We initiate coverage with a BUY rating and a target price of `540.
��
The long haul: Reach and attractive mortgage rates to drive growth
Dewan Housing Finance (DHFL) is India’s third-largest housing finance company (4% market
share in housing loans) with a loan book of `494 bn, as of September 2014. We expect the
company to deliver 22% loan-book CAGR during FY2014-17E on the back of aggressive branch
expansion and lower lending rates in mortgages that will drive market share gains. We expect
the company to benefit from (1) recent tie-ups with developers in tier-I and tier-II cities that
drive higher yields and lift retail business and (2) lower borrowing costs post the recent rating
upgrade.
Attractive valuations; expect a rerating
At 7X PER and 1.1X PBR FY2016E, DHFL trades at a significant discount to peers. We attribute
this to (1) lower profitability, (2) constraints on capital, (3) investor concerns about multiple
acquisitions and the promoter group. We expect a rerating of the stock given (1) high growth
visibility and (2) steps taken by the management to address investor concerns (eliminating crossholdings
with HDIL, induction of group management committee).
Stable RoE of 17%, NPLs negligible though constraints on capital are likely
We expect DHFL to deliver 18% EPS CAGR, 1.2-1.3% RoA and 17% RoE over FY2015-17E.
Stable interest spreads (i.e. lower lending rates supported by reducing borrowing costs), stable
operating expenses ratio and negligible NPLs are key drivers. Expansion initiatives can drive
higher growth but high leverage (average asset-to-equity ratio of 14X by FY2017E) is expected
to be a constraint. Unlocking value in the insurance JV can boost tier-I.
Key risks—heavy dependence on capital markets, risk of downgrade, developer NPLs
(1) DHFL is heavily dependent on debt and equity markets against a backdrop of high growth
and moderate RoE, (2) any rating downgrade poses a risk to profitability and to the business
model, especially given its low NIM, (3) fast growth in the developer loan book can lead to
higher NPLs and (4) diversification into multiple business lines cramps management bandwidth.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily09012015ay.pdf
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