Recommendation Price Target Price Time Horizon
Accumulate (Rs 280-240) Rs 280 Rs 345 9-12 Months

DHFL stock detailsDewan Housing Finance Corporation Limited is a deposit-taking housing finance company. The Company focuses on providing financing products to the lower and middle-income segments in India, primarily in Tier II and Tier III cities, and towns. It offers Housing Loan and Non-Housing Loans. It offers loans for construction or purchase of residential property and loans against property. It offers a range of home loan products, such as home loan, home extension loan, home improvement loan, plot loan, mortgage loan, small and medium enterprises (SME) loan, project loan and nonresidential property loan. Its deposit products include Aashray Deposit Plus-Individuals, Aashray Deposit Plus-Trusts & Institutions, Swayamsidha Deposit for Women and Wealth2Health Fixed Deposit.

DHFL share holding patternKey Highlights:

  • Net profit of Dewan Housing Finance Corporation rose 31.66% to Rs 244.77 crore in the quarter ended December 2016 as against Rs 185.91 crore during the previous quarter ended December 2015.
  • Sales rose 25.53% to Rs 2365.51 crore in the quarter ended December 2016 as against Rs 1884.37 crore during the previous quarter ended December 2015.
  • The AUM of the company increased 19% yoy to Rs 78295.81 crore at end December 2016 from Rs 65962.2 crore at end December 2015. The disbursements increased 10% to Rs 7059.43 crore, while the loan sanctions moved up 2% to Rs 9459.41 crore in the quarter ended December 2016 over the corresponding quarter of last year.
  • On asset quality front, company’s Gross NPA ratio remained flat at 0.95% at end December 2016 on sequential basis. Meanwhile, Net NPA ratio continued to be nil at end December 2016. The NPA coverage ratio was robust at 101.5% at end December 2016.
  • The company has maintained the NIM target of 2.95-3.05%, despite expectation of decline in loan yield of 14-15 in Q4FY2017. The decline in cost of funds is expected to support margins of the company.
  • The company is exhibiting steady improvement in cost-to-income ratio. The cost-to-income ratio has declined by 250 bps yoy to 23.77% in Q3FY2017, while the company targets to reduce cost-to-income ratio to 21-21.5% in the short-to-medium term.

INDIAN HOUSING FINANCE INDUSTRY:

The Indian housing finance industry is growing reckless. As mortgage lending is a strong driver of growth for both housing demand and construction of houses in the country, consequently, the Housing Finance Companies (HFCs) have witnessed an increase in total outstanding loans with a CAGR of 26% between financial year 2009-2010 and 2014-2015. During the same period, the growth in total loans outstanding in the industry (i.e. Banks and HFCs) was 19%-20%.

Housing Finance Companies (HFCs) have been at the forefront in catering to the financial needs of the section of the society that struggles to get loan from banks and other loan providers. This is true for both rural and semiurban areas.

Over the years, Housing Finance Companies, being specialised lending institutions for housing, have gained a significant market share at the expense of banks and have emerged as one of the major players in the mortgage market in India. Despite banks showing healthy growth in their lending portfolios, HFCs are able to gain market share due to their strong origination skills, focused approach, niche marketing, customer service orientation and diverse channels of sourcing business. HFCs are expected to maintain a robust position in the Indian housing finance market in the near future.

outstanding trend housing finance loanThe Reserve Bank of India has done well by setting a target for the Consumer Price Index (CPI), which was a landmark change in its monetary policy. CPI has been easing since November 2015 and has registered below par numbers. The decline in inflation and subdued commodity prices provided enough headroom for the Reserve Bank of India (RBI) to cut interest rates two times in financial year 2015-16. India’s corporate and industry sector has been calling for rate cuts to ease the cost of borrowing and stimulate the economy. Home loan rates settled below 10% for general borrowers in the Financial Year 2015-16, down from over 10% in Financial Year 2014-15. A further easing of interest rates would spur housing loan demand and drive the end-user market.

Housing demand is correlated with increase in household income. During the past years, there has been an increasing movement of households into higher income categories. The number of households with annual income less than Rs. 1 lakh was approximately 53% of total population in financial year 2013-14, compared to approximately 63% in 2008-09.

The number of households with an annual income between Rs. 2 lakh and Rs. 5 lakh has increased by a CAGR of 9% between financial year 2008-09 and financial year 2013-14. In addition, the number of households with annual income exceeding Rs. 5 lakh has increased by a CAGR of 8% in the same period.

Despite a flourishing housing industry, India still faces huge shortage of houses, especially in urban areas. The proportion of the Indian population living in urban areas has been increasing steadily; from approximately 28.8% in 2004 to approximately 31.8% in 2014. The CAGR growth rate from 2001 to 2011 for the urban population was 2.8% compared to 1.6% for the overall population in India. Urbanisation is expected to accelerate at a CAGR of 2.0-2.5% between 2015 and 2021, compared to the overall population growth of 1.2% during the same period. It is expected that by 2030, approximately 40% of India’s population will reside in urban areas.

STRONG PAN INDIA PRESENCE

DHFL’s distribution network is designed to reach out to the LMI segment and tap a growing potential customer base throughout India. Company maintains a pan-India marketing and distribution network with a presence at 349 locations throughout India, including 182 branches, 146 service centres, 18 circles/cluster offices, 2 disbursement hubs, and 1 collection centre, as at March 31,2016. Company’s network is grouped into circles and clusters located across the length and breadth ofIndia. Company’s distribution network in India is spread mainly across Tier-II and Tier-III cities and towns.

In addition to the network within India, Company has international representative offices located in London and Dubai. To broaden the client base and penetrate further geographically, Company has entered into tie-ups with select public and private sector banks.

PRODUCTS OFFERED BY DHFL

Housing Loans

Home loan products of DHFL are tailored to suit borrowing capabilities across different class of borrowers namely salaried class, professionals, self employed and entrepreneurs with repayment options ranging up to 30 years. Housing loans include finance for purchase of ready or under-construction housing units, home renovation/ extension, self-construction, purchase of plots and composite loan for purchase of plot and self-construction. Special care is taken to enable home loan access to LMI segment while designing the product and processes.

Project Loans

DHFL offers loans to developers for construction and development of predominantly residential and mixed-use projects. The disbursements in project loans are linked to a schedule of construction progress.

Loans/Loan Against Property

Company offers a range of loans backed by mortgage of residential or commercial properties to small & medium enterprises, business units, professionals and self employed for working capital, business expansion, purchase of commercial property or similar purposes. Lease Rental Discounting is yet another product under this category enabling loan by discounting future rent receivables and mortgage of leased property.

SME Funding

With the strategic intent of enabling financial inclusion for the micro, small and medium enterprises (MSMEs), Company launched the SME funding vertical in the financial year 2014-15. During the financial year 2015-16, Company continued to extend loans backed by property or revenue generating equipments for the purpose of growth capital to MSMEs with turnover of less than Rs. 200 crore. The average LTV (Loan to Value) ratio at origination is sub 45% and DHFL’s emphasis is to on-board significant portion under Priority Sector Lending Assets (PSL).

Company remains focused towards prudent risk management practices and maintains high underwriting standards. For sourcing, DHFL focuses sharply on pre-defined selective target industries and segments. Company also undertakes key initiatives to grow the business by way of building existing and new channels such as signing of MOUs with leading Equipment manufacturers, OEMs and Distribution Agents.

Deposits

DHFL is amongst the select housing finance companies that have a Certificate of Registration (COR) with permission to accept public deposits under Section 29A of the National Housing Bank Act, 1987. DHFL has been striving to offer best-in-class deposit products that encourage savings amongst the household.

Last year, Company launched an innovative new product – DHFL Wealth2Health Deposit, which not only gives the customers all the benefits of a normal fixed deposit but also provides for liquidity in case of any health emergency, along with a host of other, related benefits.

Other Products and Services

DHFL also operates in fee-based verticals that complement the Company’s core business. By crossselling various products like insurance, to the Company’s customers, Company is able to retain its present customer base and generate additional fee-based income resulting in higher returns.

Life insurance services

In the financial year 2013-14, DHFL entered into a joint venture with Prudential Financial Inc and acquired 50.00% equity stake in DHFL Pramerica Life Insurance Co Ltd, (erstwhile DLF Pramerica Life Insurance Company Ltd.) a registered life insurance company in India regulated by the IRDA, thus foraying into Life Insurance Business as part of the strategy to become one stop Financial services provider.

General Insurance services

During the financial year 2015-16, DHFL has entered into a memorandum of understanding with Chola MS General Insurance where it serves as a group administrator and manager for group health and/or personnel accident insurance policy.

Asset Management Services

During the financial year 2014-15, Company entered into definitive agreements in respect of the joint venture with PGLH of Delaware, Inc., an indirect wholly owned subsidiary of Prudential Financial, Inc. Post receipt of the regulatory approvals during the financial year 2015-16, Company acquired a 50% equity stake in each of DHFL Pramerica Asset Managers Private Limited (DPAMPL, erstwhile Pramerica Asset Managers Private Limited), DHFL Pramerica Trustees Private Limited (DPTPL, erstwhile Pramerica Trustees Private Limited), respectively, being the Asset Management Company and Trustee Company of DHFL Pramerica Mutual Fund (erstwhile Pramerica Mutual Fund). DPAMPL develops, manages, markets and operates an asset management business headquartered in Mumbai with a presence in 19 cities across India.

FINANCIAL PERFORMANCE (QUARTERLY):

Dewan Housing Finance Corporation (DHFL) reported robust 32% growth in the net profit to Rs 244.77 crore for the quarter ended December 2016 (Q3 of FY2017). Strong improvement in margins and stable asset quality has boosted the earnings performance of the company in Q3FY2017. The company has also exhibited strong loan growth at 19%, while improving cost-to-income ratio in Q3FY2017.

The net interest margin improved to 3.07% in the quarter ended December 2016, compared with 2.87% in the corresponding quarter last year and 3.05% in the previous quarter. The weighted average cost of the fund mix declined to 9.10% at end December 2016 from 9.33% at end September 2016 and 9.61% at end December 2015.

Income from operations increased 26% to Rs 2365.51 crore in the quarter ended December 2016. Interest expense moved up 27% to Rs 1800.13 crore, while other expenses (including staff cost of Rs 66.25 crore and other expenses of Rs 121.73 crore) rose 5% to Rs 187.98 crore. Ensuing Gross profit advanced 32% to Rs 378.42 crore.

The depreciation declined 2% to Rs 6.71 crore. PBT increased 33% to Rs 371.71 crore. Effective tax rate was higher at 34.2% compared with 33.7% in Q3FY2015. The profit after tax of the company moved up 32% to Rs 244.77 crore in the quarter ended December 2016.

Net interest income for the quarter ended December 2016 increased 21% to Rs 515 crore as against Rs 426.4 crore in the same period of the previous year.

Loan book and disbursements

The AUM of the company increased 19% yoy to Rs 78295.81 crore at end December 2016 from Rs 65962.2 crore at end December 2015. The disbursements increased 10% to Rs 7059.43 crore, while the loan sanctions moved up 2% to Rs 9459.41 crore in the quarter ended December 2016 over the corresponding quarter of last year.

Asset quality

Gross NPA ratio remained flat at 0.95% at end December 2016 on sequential basis. Meanwhile, Net NPA ratio continued to be nil at end December 2016. The NPA coverage ratio was robust at 101.5% at end December 2016.

Particulars 1612 (3) 1512 (3) Var (%) 1612 (9) 1512 (9) Var (%) 1603 (12) 1503 (12) Var (%)
Income from operations 2365.51 1884.37 26 6490.44 5347.34 21 7311.83 5978.96 22
Other Income 1.02 0.96 6 3.13 2.81 11 4.89 2.68 82
Total Income 2366.53 1885.33 26 6493.57 5350.15 21 7316.72 5981.64 22
Interest Expenses 1800.13 1419.71 27 4906.16 4011.47 22 5490.03 4459.60 23
Other expenses 187.98 178.33 5 540.70 500.29 8 700.22 553.48 27
Gross profit 378.42 287.29 32 1046.71 838.39 25 1126.47 968.56 16
Depreciation 6.71 6.83 -2 19.88 19.25 3 24.30 25.52 -5
Profit before tax 371.71 280.46 33 1026.83 819.14 25 1102.17 943.04 17
Provision for tax 126.94 94.55 34 348.05 279.60 24 372.97 321.75 16
PAT 244.77 185.91 32 678.78 539.54 26 729.20 621.29 17
EPS*(Rs) 31.27 23.75 28.90 22.97 23.29 19.85

* Annualized on current equity of Rs 313.13 crore. Face Value: Rs 10, Figures in Rs Crore.
Source: Capitaline Corporate Database

DHFL gross revenue GraphThe company has fared reasonably well, except for some volatility in November 2016 post demonetization. The collection efficiency which saw a drop post demonetization in November 2016, it returned to normal pre-demonetization levels of 97-98% including December 2016. The company expects stable collection performance in Q4FY2017. Post demonetization, the disbursements of the company dipped 12% in November 2016 over October 2016, while the disbursements as well as sanctions returned back to pre-demonetization levels soon in December 2016.

Although, the high ticket loan segment has shown impact, while the affordable housing segment remain stable in Q3FY2017, post demonetization. Among the major areas, some pockets in NCR, Gujarat, Maharashtra and MP witnessed some slowdown in housing loan disbursements, while other regions maintained stable growth.

As per the company, the bulk of disruption due to demonetization is behind, while there might be some spillover in Q4FY17 and situation would normalize thereafter. The company expects the moderation in prices along with government measures on affordable housing schemes to drive demand going forward.

The AUM of the company increased 19% yoy to Rs 78295.81 crore at end December 2016 from Rs 65962.2 crore at end December 2015. The disbursements increased 10% to Rs 7059.43 crore, while the loan sanctions moved up 2% to Rs 9459.41 crore in the quarter ended December 2016 over the corresponding quarter of last year.

The disbursements growth was mainly driven by home loans and LAP disbursements rising 15-16%, while project finance disbursements were nearly flat in Q3FY2017 over a year ago. The company has maintained the NIM target of 2.95-3.05%, despite expectation of decline in loan yield of 14-15 in Q4FY2017. The decline in cost of funds is expected to support margins of the company.

Particulars (Rs in Cr.) 201603 YOY (%) 201503 201203 201103 201003
      Operating Income 7783.6 22.64 6346.51 3211.95 2093.74 987.5
      Other Operating Income 68 -6.98 73.1 0 0 53.62
       Other Income 5.05 85.66 2.72 4.41 44.42 2.09
      Total Income 7856.65 22.33 6422.33 3216.36 2138.16 1043.21
      Operating Expenditure
      Interest 5491.95 23.13 4460.24 2349.55 1390.13 700.63
      Employee Expenses 323.55 25.08 258.68 120.02 102.21 43.74
      Other Expenses 890.41 25.34 710.38 253.68 168.47 82.46
      TOTAL OPERATING EXPENDITURE 6705.91 23.51 5429.3 2723.25 1660.81 826.83
      Operating Profit Before Prov. & Cont. 1150.74 15.88 993.03 493.11 477.35 216.38
      Depreciation 29.84 10.23 27.07 7.39 6.91 3.07
      TOTAL EXPENDITURE 6735.75 23.45 5456.37 2730.64 1667.72 829.9
      PBT 1120.9 16.04 965.96 485.72 470.44 213.31
      PBT 1120.9 16.04 965.96 485.72 470.44 213.31
      Tax 376.75 16.03 324.7 130.41 101.36 55.35
      Reported Profit After Tax 744.15 16.04 641.26 355.31 357.38 158.4
      Profit/Loss of Associate Company 5.15 325.62 1.21 1.3 0 0
      Net Profit after Minority Interest & P/L Asso.Co. 749.3 16.63 642.47 323.77 329.1 154.82
      Adjusted Profit After Extra-ordinary item 749.3 16.63 642.47 323.77 302.18 154.82
      Reserve & Surplus 4972.99 2.84 4835.75 1904.69 1451.17 788.41
      PBIDTM(%) 85.34 85.93 88.5 89.19 92.86
      PBDTM(%) 14.78 15.65 15.35 22.8 21.91
      PATM(%) 9.56 10.1 11.06 17.07 16.04

Source: Capitaline Corporate Database

The company has targeted loan growth in the range of 16-18%. The proportion of project finance portfolio is expected to increase to 14-15% from existing 11.5% in Q3FY17. The company proposes to maintain the share of securitized book at 10-15%.

The company did not utilized the 90 day NPA recognition benefit provided by the RBI. Nevertheless, the gross NPA ratio was stable at 0.95%. The company continues to maintain provisions equivalent to the entire NPA amount. The company is exhibiting steady improvement in cost-to-income ratio. The cost-to-income ratio has declined by 250 bps yoy to 23.77% in Q3FY2017, while the company targets to reduce cost-to-income ratio to 21-21.5% in the short-to-medium term.

With regard to office building, the company is putting efforts to get money back, while there might be some delay due to demonetization. On back of healthy capital ratios, the company is not looking for any equity raising for 2-3 years.

CONSOLIDATED ASSETS & LIABILITIES:

201603 201503 201203 201103 201003
      SOURCES OF FUNDS: (Rs in Cr)
      Share Capital 291.8 145.68 116.84 104.43 85.03
      Reserves & Surplus 4972.99 4835.75 1904.69 1451.17 801.89
      Loan Funds 51556.07 40508.92 20180.26 16560.89 9305.47
      Deferred Tax Liability 60.74 31.28 -6.05 -3.98 3.87
      Other Liabilities 592.63 440.58 226.59 101.49 0
      Total Liabilities 57599.23 45962.21 22615.07 18466.5 10225.01
      APPLICATION OF FUNDS:
      Fixed Assets 763.61 996.23 256.2 235.31 217.61
      Intangible Assets 334.64 4.89 349.53 345.16 0
      Investments 1810.7 1751.29 247.39 701.17 114.85
      Current Assets, Loans & Advances 7400.75 3494.81 2575.18 3071.13 854.94
         Sundry Debtors 218.2 196.14 57.38 47.37 9.68
         Cash & Bank Balance 3496.9 687.49 945.34 1378.73 744.46
         Other Current Assets 61.55 58.21 18.82 16.81 1.6
         Loans & Advances 3624.1 2552.97 1553.64 1628.22 99.2
      Current Liabilities & Provisions 11645.33 9466.92 5127.73 4437.93 143.7
         Current Liabilities 11572.12 9428.54 5049.44 4391.02 82.8
         Provisions 73.21 38.38 78.29 46.91 60.9
      Net Current Assets -4244.58 -5972.11 -2552.55 -1366.8 711.24
      Other Assets 58934.86 49181.91 158.32 84.29 0
      Total Assets 57599.23 45962.21 22615.07 18466.5 10225.01

Source: Capitaline Corporate Database

DHFL Sanction & distribution graphThe Sanctions and Disbursements of housing/other property loans, during the financial year ended March 31, 2016were Rs 37,608.13 crore and Rs 24,202.22 crore respectively, as against Rs 28,497.08 crore and Rs 19,821.53 crore, respectively, in the previous financial year.

Rs in Cr 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Sanctions 2,698.18 5,273.96 8,949.48 12,845.31 17,336.85 22,377.61 28,497.08 37,608.13
Disbursements 2,266.02 3,865.56 6,505.54 9,065.24 13,357.73 16,647.45 19,821.54 24,202.22
Cumulative Disbursement 9,368.66 13,234.22 19,739.76 28,805.00 42,162.73 58,810.18 78,631.72 102,833.94

The cumulative loan disbursement of the Company since inception was Rs 1,02,833.94 crore. The loan book grew 21.03% primarily because the Company deepened its reach into existing markets and continued to focus on under-penetrated markets and segments.

OUTLOOK:

Dewan Housing Finance Corporation Limited is a deposit-taking housing finance company. The Company focuses on providing financing products to the lower and middle-income segments in India, primarily in Tier II and Tier III cities, and towns.Company provides housing loans include finance for purchase of flats, construction of homes, extension and for improvement in the flats / homes and for acquiring plots of land (which are intended to be used for construction of houses). LAP is availed for working capital and other business needs and construction of residential projects.

The Government has been at the front in encouraging India’s housing sector. Many new initiatives and policies focused on lending for housing were introduced in recent past. The biggest highlight was the inclusion of housing loans of up to Rs. 50 lakh under affordable housing in six main cities and Rs. 40 lakh in other cities and bringing loans up to Rs. 28 lakh in metros and Rs. 20 lakh in other centres under priority sector lending.

The decision of the RBI to increase loan-to-value (LTV) ratio to 90% for loans up to Rs. 30 lakh is another positive step, which will enable housing finance companies to lend more to Lower Middle Income customers. Government should now consider extending a part of Rs. 2.30 lakh interest subsidy (on the home loans up to Rs. 6 lakh for Low Income Group customers) towards capital subsidy, so that they can meet the 10% capital requirement. This will empower a large section of Low Income Group customers who struggle to arrange minimum capital requirement of 10% to avail home loans.

The launch of ‘Housing-For-All by 2022’ scheme in financial year 2015-16 heralds a new era in the housing finance sector. It will provide the much-needed boost to the real estate and housing finance industry by creating an enabling and supportive environment for expanding credit flow and increasing home ownership.

The Real Estate (Regulation and Development) Act, 2016 is expected to enhance transparency in the real estate sector and boost the confidence of home buyers. It will also bolster domestic and foreign investment in the real estate sector and help achieve the Government’s objective to provide ‘Housing for All’ by enhanced private participation.

On performance front, for the nine months ended December 2016 (9MFY2017), DHFL reported 21% rise in Income from operations at Rs 6493.57 crore. Interest expense galloped 22% to Rs 4906.16 crore, while other expenses moved up 8% to Rs 540.70 crore. Ensuing Gross profit increased 25% to Rs 1046.71 crore. Depreciation rose 3% to Rs 19.88 crore. PBT increased 25% to Rs 1026.83 crore. Effective tax rate stood at 33.9% 9MFY2017, compared with 34.1% in 9MFY2016. The PAT of the company improved 26% to Rs 678.78 crore in 9MFY2017.

The company has reported EPS of Rs 25.69. And going forward we expect company to deliver Rs 30-32 FY17E, on these earnings the company is available at a PEx of 8.75x FY17E. Hence the scrip can be accumulate between Rs 280-240 for the target of Rs 345 for a time frame of 9-12 months.


Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more


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