For 4QFY2016, Dewan Housing Finance Ltd (DHFL) reported a 17% growth in PAT to
Rs190cr, which is lower than our expectation. The miss was on account of lower-thanexpected
loan growth; however, on other operating parameters the company’s
performance remained satisfactory.
Loan growth remained decent: DHFL reported a 17.3% growth in loans during the
quarter. The AUM grew by 22% yoy to Rs69,524cr, which is on including securitized
assets. Sanctions and disbursements remained strong, growing by 32% and 22%,
respectively. Total sanctions in FY2016 stood at Rs37,606cr up 32%, while
disbursements went up by 22% for the same period.
Project loans growing faster than overall loans: Loans to individuals grew by 17%
(72% of the AUM) during FY2016. DHFL aggressively expanded its non-individual
loan book during FY2016, primarily comprising of loans to projects, which grew by
83% and accounted for ~9% of the AUM vs 6%(FY15) The Management intends to
take this share to ~16-17% of AUM over the next few years. Though project loans are
perceived to be risky, DHFL’s low tickets size of ~Rs25cr and higher yield on the project
loans should take care of any incremental slippages.
Asset quality continues to be stable: DHFL has been able to maintain a stable asset
quality over the last few quarters with GNPAs at 0.93% at the end of 4QFY2016 vs
0.95% as at the end of 4QFY2015. Lower slippages have resulted in stable
provisioning at Rs50cr for 4QFY2016 vs Rs48cr for 3QFY2015. On a yoy basis,
provision was up 43%; however, looking at the 83% growth in project loans where the
provisioning requirements are high, this does not seem to be a cause of concern. NPA
from the individual loan segment stood at 0.74% while that from the non-individual
segment stood at 1.2% (LAP, Project Loans and SME combined); we don’t expect any
deterioration in the asset quality in the near term.
Margins as well as return ratios likely to remain stable: Though yield has come down,
the overall cost of funds has also come down accordingly and hence DHFL has been
able to improve its NIM for FY2016 to 2.96% vs 2.85% (for FY2015). With rising share of
project loans the company should be able to retain its NIM above 2.9% and hence deliver ROA
of 1.2% and ROE of 16% by FY2018. DHFL also received a refund of Rs250cr from a developer
after a change in the latter’s construction plans who now expects to complete the construction in
2-3 years. The release of funds and completion of the building would be a positive move.
Outlook and valuation: We expect the company to post a healthy loan book CAGR of
21% over FY2015-18E, which is likely to translate in earnings CAGR of 22% over the
same period. The stock currently trades at 0.9x FY2018E ABV. We maintain our BUY on
the stock with a target price of Rs270.

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