4QFY2016 Result Update | HFC

May 6, 2016

Dewan Housing Finance

BUY

CMP

`197

Performance Highlights

Target Price

`270

Investment Period

12 months

Particulars (` cr)

4QFY16 3QFY16

% chg (qoq) 4QFY15

% chg (yoy)

NII

486

465

4.6

405

19.9

Stock Info

Pre-prov. profit

333

328

1.4

286

16.4

Sector

HFC

PAT

190

186

2.0

162

16.9

Market Cap (` cr)

5,735

Source: Company, Angel Research

Beta

1.6

For 4QFY2016, Dewan Housing Finance Ltd (DHFL) reported a 17% growth in PAT to

`190cr, which is lower than our expectation. The miss was on account of lower-than-

52 Week High / Low

268/140

expected loan growth; however, on other operating parameters the company’s

Avg. Daily Volume

16,37,452

performance remained satisfactory.

Face Value (`)

Loan growth remained decent: DHFL reported a 17.3% growth in loans during the

BSE Sensex

25,229

quarter. The AUM grew by 22% yoy to `69,524cr, which is on including securitized

assets. Sanctions and disbursements remained strong, growing by 32% and 22%,

Nifty

7,733

respectively. Total sanctions in FY2016 stood at

`37,606cr up

32%, while

Reuters Code

DWNH.BO

disbursements went up by 22% for the same period.

Bloomberg Code

DEWH.IN

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

Shareholding Pattern (%)

83% and accounted for ~9% of the AUM vs 6%(FY15) The Management intends to

Promoters

34.9

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 ~`25cr and higher yield on the project

MF / Banks / Indian Fls

2.6

loans should take care of any incremental slippages.

FII / NRIs / OCBs

33.6

Asset quality continues to be stable: DHFL has been able to maintain a stable asset

Indian Public / Others

28.9

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 `50cr for 4QFY2016 vs `48cr for 3QFY2015. On a yoy basis,

Abs. (%)

1yr

3yr

provision was up 43%; however, looking at the 83% growth in project loans where the

Sensex

2.6

(7.9)

29.0

provisioning requirements are high, this does not seem to be a cause of concern. NPA

DHFL

12.4

(9.9)

127.7

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.

3-Year Daily Price Chart

Margins as well as return ratios likely to remain stable: Though yield has come down,

300

the overall cost of funds has also come down accordingly and hence DHFL has been

250

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

200

of 1.2% and ROE of 16% by FY2018. DHFL also received a refund of `250cr from a developer

150

after a change in the latter’s construction plans who now expects to complete the construction in

100

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 `270.

Key financials (standalone)

Source: Company, Angel Research

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

NII

1,256

1,664

2,050

2,500

% chg

41.5

32.5

23.2

21.9

Net profit

620

729

866

1,084

% chg

17.8

17s.7

18.5

25.3

Siddharth Purohit

NIM (%)

2.8

2.9

022 - 3935 7800 Ext: 6872

EPS (`)

21.3

24.9

29.7

34.6

[email protected]

P/E (x)

9.2

7.9

6.6

5.7

P/ABV (x)

1.4

1.2

1.1

0.9

Chintan Shah

RoA (%)

1.3

1.2

1.1

1.2

022 - 4000 3600 Ext: 6828

RoE (%)

15.1

14.7

15.4

16.2

[email protected]

Source: Company, Angel Research; Note: CMP as of May 6, 2016

Please refer to important disclosures at the end of this report

Dewan Housing Finance | 4QFY2016 Result Update

Exhibit 1: 4QFY2016 performance (standalone)

Particulars (` cr)

4QFY16

3QFY16

% chg (qoq)

4QFY15

% chg (yoy)

FY2016

FY2015

% chg

Interest earned

1,964

1,884

1,581

7,312

5,979

Interest expenses

1,479

1,420

4.1

1,175

25.8

5,490

4,460

23.1

Net interest income

486

465

4.6

405

19.9

1,822

1,519

19.9

Non-interest income

117.1

24.6

82.4

Operating income

488

466

4.8

407

19.9

1,827

1,522

20.0

Operating expenses

155

137

13.0

121

28.1

550

474

15.9

Pre-prov. profit

333

328

1.4

286

16.4

1,277

1,048

21.9

Provisions & cont.

4.2

42.9

175

105

66.7

PBT

283

280

0.9

251

12.7

1,102

943

16.9

Prov. for taxes

(1.2)

5.2

373

322

15.9

PAT

190

186

2.0

162

16.9

729

621

17.4

EPS (`)

13.0

12.7

2.0

22.3

(41.7)

50.0

85.3

(41.4)

Cost-to-income ratio (%)

31.8

29.5

29.7

30.1

31.1

Effective tax rate (%)

33.0

33.7

35.4

33.8

34.1

Source: Company, Angel Research

Loan growth remained decent: DHFL reported a 17.3% growth in loans

during the quarter, while on including securitized assets the AUM grew by 22% yoy

to `69,524cr. Sanctions and disbursements remained strong, growing by 32% and

22%, respectively. Total sanctions in FY2016 stood at `37,606cr up 32% while

disbursements went up by 22% yoy for the full year FY2016.

Project loans growing faster than overall loan: 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 compared to 6% as of FY2015 end.

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

~`25cr and higher yield on the project loans should take care of any incremental

slippages.

Exhibit 2: AUM growth remained strong

Exhibit 3: Loan Mix

100%

75,000

90%

80%

60,000

70%

60%

75%

74%

71%

72%

45,000

50%

40%

30,000

30%

20%

15,000

10%

18%

17%

16%

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

LAP

Project Finance

Home Loans

Others

Source: Company, Angel Research

May 6, 2016

Dewan Housing Finance | 4QFY2016 Result Update

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 the company has been able to improve its NIM for the full

year 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 `250cr 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.

Exhibit 4: NIM remained healthy

Exhibit 5: NII growth trend

4.0%

500

480

3.5%

460

3.0%

2.9%

3.0%

440

420

2.5%

400

2.0%

380

360

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Source: Company, Angel Research

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 `50cr for

4QFY2016 vs `48cr 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.

Exhibit 6: Gross NPAs remains comfortable

Exhibit 7: CAR remains comfortable

1.0%

18.0%

17.5%

17.0%

16.5%

0.5%

16.0%

15.5%

15.0%

14.5%

0.0%

14.0%

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Source: Company, Angel Research

May 6, 2016

Dewan Housing Finance | 4QFY2016 Result Update

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 BUY on the stock,

with a target price of `270.

Company Background

DHFL was established in 1984 by late Shri Rajesh Kumar Wadhawan. The

company is a dominant player in niche markets (tier II & III cities) with strong

foothold in the limited competition low and middle income (LMI) segment. After the

acquisition and merger of First Blue Home Finance, DHFL also now caters to the

middle and upper middle income group. The company operates in the mortgage

financing business where the growth and asset quality have remained healthy over

the past few years.

The company has emerged as a one-stop-shop for its customers’ financial needs,

extending beyond home loans. The company has a presence in the education

loans, life insurance, and mutual funds segments through Avanse Education Loans,

DHFL Pramerica Life Insurance and DHFL Pramerica Asset Managers Pvt Ltd,

respectively.

The company is India’s third largest private sector housing finance company with

an AUM of `69,524cr as of December 31, 2015. The company has a well

diversified loan book with housing loans accounting for the largest share at 77%,

followed by LAP (16%), project loans (5%) and loans to SMEs (2%) (as of

December 31, 2015).

DHFL currently has a strong distribution network with pan-India presence and

2 international representative offices in the UK and the UAE. It operates via a large

distribution network of 362 company operated centers and 357 locations through

alliance partners across India with the distribution network focused primarily on tier

II and tier III locations.

May 6, 2016

Dewan Housing Finance | 4QFY2016 Result Update

Income statement (standalone)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016 FY2017E

FY2018E

NII

678

888

1,256

1,664

2,050

2,500

- YoY Growth (%)

70.0

30.9

41.5

32.5

23.2

21.9

Other Income

280

296

265

164

175

188

- YoY Growth (%)

11.7

5.8

(10.5)

(38.3)

7.1

7.4

Operating

958

1,184

1,522

1,828

2,225

2,688

Income

- YoY Growth (%)

47.5

23.6

28.5

20.1

21.7

20.8

Operating

304

384

480

550

637

731

Expenses

- YoY Growth (%)

22.3

26.2

25.2

14.5

15.8

14.7

Pre - Provision

654

801

1,041

1,278

1,588

1,957

Profit

- YoY Growth (%)

63.1

22.4

30.1

22.7

24.3

23.2

Prov. & Cont.

175

274

311

- YoY Growth (%)

89.9

47.7

48.7

77.4

56.2

13.5

Profit Before Tax

609

734

943

1,102

1,314

1,646

- YoY Growth (%)

61.4

20.5

28.4

16.9

19.2

25.3

Prov. for Taxation

159

206

322

373

449

562

- as a % of PBT

26.1

28.1

34.1

33.8

34.1

PAT

459

527

620

729

866

1,084

- YoY Growth (%)

60.9

14.8

17.8

17.6

18.7

25.3

Balance sheet (standalone)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016

FY2017E

FY2018E

Share Capital

128

146

292

313

Reserve & Surplus

3,109

3,447

4,490

4,725

5,456

6,850

Loan Funds

27,441

33,890

40,526

49,800

61,730

76,519

- Growth (%)

61.9

23.5

19.6

22.9

24.0

Other Liab. & Prov.

5,172

6,465

9,557

13,115

15,400

18,246

Total Liabilities

35,850

43,930

54,718

67,933

82,878

1,01,928

Investments

275

721

1,006

1,249

1,524

4,080

Advances

32,403

38,651

48,789

60,572

73,898

88,677

- Growth (%)

77.5

19.3

26.2

24.2

22.0

20.0

Fixed Assets

438

988

985

1,222

1,491

1,834

Other Assets

2,735

3,569

3,938

4,889

5,965

7,336

Total Assets

35,850

43,930

54,718

67,933

82,878

1,01,928

May 6, 2016

Dewan Housing Finance | 4QFY2016 Result Update

Ratio analysis (standalone)

Y/E March

FY2013

FY2014

FY2015

FY2016

FY2017E

FY2018E

Profitability ratios (%)

NIMs

2.6

2.4

2.8

2.9

Cost to Income Ratio

31.7

32.4

31.6

30.1

28.6

27.2

RoA

1.6

1.3

1.2

1.1

1.2

RoE

17.4

15.5

15.1

16.1

16.8

Asset Quality (%)

Gross NPAs

0.73

0.8

1.0

1.1

1.2

1.3

Net NPAs

0.48

0.5

0.7

0.8

Provision Coverage

34.2

33.5

28.7

31.5

33.1

38.6

Per Share Data (`)

EPS

17.9

20.5

21.3

24.9

29.7

34.6

ABVPS (75% cover.)

118.7

129.0

143.7

162.0

184.0

215.3

DPS

1.0

1.6

1.1

0.6

0.8

0.9

Valuation Ratios

PER (x)

11.0

9.6

9.2

7.9

6.6

5.7

P/ABVPS (x)

1.7

1.6

1.4

1.3

1.1

0.9

Dividend Yield

0.5

0.8

0.5

0.3

0.4

DuPont Analysis

NII

2.4

2.2

2.5

2.7

(-) Prov. Exp.

0.2

0.3

0.4

0.3

Adj. NII

2.2

2.1

2.3

2.4

Treasury

0.0

Int. Sens. Inc.

2.2

2.1

2.4

Other Inc.

0.9

0.7

0.5

0.3

0.2

Op. Inc.

3.2

2.8

2.9

2.7

2.6

Opex

1.1

1.0

0.9

0.8

PBT

2.1

1.8

1.9

1.8

1.7

1.8

Taxes

0.6

0.5

0.7

0.6

RoA

1.6

1.3

1.2

1.1

1.2

Leverage

10.9

11.7

12.0

12.7

14.0

14.3

RoE

17.1

15.5

15.1

16.1

16.8

May 6, 2016

Dewan Housing Finance | 4QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and MCX Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and

Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a

registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial

ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /

managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst

has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity

of the company covered by Analyst.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

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have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Dewan Housing Finance

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

May 6, 2016