Dewan Housing Finance - Opportune Prospects; Concerns Waning; Initiating Coverage :: Edelweiss

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Dewan Housing Finance (DHFL) is a dominant player in niche markets (Tier II & III cities) with strong foothold in the limited competition low and middle income (LMI) segment. The company has built a lucrative model (bolstered by strategic inorganic expansion) that caters to a gamut of potential customer base, portending humungous growth opportunities. We estimate it to sustain loan CAGR of 20% plus, which along with improving NIMs (aided by recent rating upgrade), will lead to an impressive 23% PAT CAGR and improve RoE to over 19% in FY17E. Initiate coverage with ‘BUY’ and TP of INR642 (assigning 1.75x FY16E P/Adj. B), implying >50% upside.

Niche business model portends humungous scalability opportunity

DHFL has carved a niche in terms of presence across customer segments—bottom end–Aadhar, middle segment–DHFL and higher end–First Blue. This, in conjunction with pan-India presence, offers a huge opportunity landscape in an underpenetrated market. Moreover, the company has gained expertise in the LMI and self employed class—>50% of India’s work force, which is largely under serviced. DHFL has attained a commendable feat of maintaining benign asset quality despite operating in tougher segments by virtue of following stringent in-house appraisal systems. Focused approach on retail loans with <6 also="" comfort.="" developer="" exposure="" lends="" loans="" of="" p="" to="">

Rating upgrade + Higher pricing power = Margin improvement

The recent rating upgrade (AAA by CARE) paves the way for wider access to debt borrowing at relatively lower cost and shift from high cost bank borrowing (at 11%). This, along with active sell-downs (>75% of book qualifies for PSL), will provide ~15bps delta to funding cost. Moreover, higher yields—a derivative of higher pricing power- will trigger NIM (calc) improvement to~2.6% by FY17E.

LINK
https://www.edelweiss.in/research/Dewan-Housing-Finance--Opportune-Prospects;-Concerns-Waning;-Initiating-Coverage/27999.html