Dewan Housing Finance Ltd. - Buy

Company profile - 

India's second largest housing finance company in the private sector and the third largest housing finance company in india, dhfl (dewan housing finance corporation pvt ltd) , focuses on financing low- and middle-income customers and has a predominant presence in non-urban areas where housing finance is relatively under-penetrated. It is now diversifying its customer base and geographical presence through acquisitions and strategic tie-ups. Given the growing affordability and huge requirement of houses in the semi-urban and rural areas, the loan book of dewan housing is expected to grow at faster than the industry. Based in india's commercial capital mumbai, dhfl strives continually to reach out to its customers through its extensive network of 550 offices spread across the length and breadth of the country, and international representative offices, in dubai, uae and london, uk.

Specialties

• housing finance
• home loans
• fixed deposits
• nri home loans
• loan against property

Why to buy?

PAN india player with presence across customer segment 

dhfl has become a dominant financier with pan india presence catering to underserved low-middle income (lmi) segment, capitalizing well on the untapped opportunity the company has registered 10 year loan cagr of 43% and has now become a 3rd largest housing finance company with aum of over inr 526b and 3.8% mortgage market share. Government’s thrust on lmi segment will expand the business pie and dhfl is well positioned to capture the opportunity given core expertise in the segment.

Rating upgrade to aaa

Ratings upgrade by care to AAA will provide wider access to debt market and will help replace high cost bank borrowings (60% of total borrowings) with lower cost bonds. The combination of increasing borrowings via bonds and likely reduction in banks base rates will help reduce cost of funds by 20bp. also, rising share of non-retail book (loans against property, developer funding) will aid margin expansion.

Branch model

The company operates through branches unlike the direct selling agent model adopted by other housing finance companies.Since this increases accountability of dewan housing's staff in terms of loans origination and monitoring, it has allowed the company to keep its non-performing assets under control. This is despite having a chunk of loans to risky segments such as self-employed customers and non-housing loans.

Asset quality to remain healthy

GNPA to remain below 1%, dhfl maintains high asset quality standards despite its focus on the lmi segment. with interest rates headed down and property prices remaining stable, we expect asset quality to remain stable. A strong record of impeccable asset quality performance across cycles provides comfort. 

Insurance business turns profitable 

Entered the life insurance business through a joint venture called dhfl pramerica life insurance (dpli), with US-based prudential financial. post the acquisition by dhfl, the company has reported 72% ape growth in 1hfy15 and has turned profitable. dhfl’s vast mortgage customer base offers an attractive opportunity for the company and could be a value driver for dhfl over medium term. 

We believe company currently trades at attractive valuation and long term investor can acquire the stock in SIP mode.