MOSL: DEWAN HOUSING (Buy)-Growth surprises positively-re-rating to continue

​Dewan Housing: Growth surprises positively; re-rating to continue

(DEWH IN, Mkt Cap USD2.2b, CMP INR458, TP INR630, 38% Upside, Buy)

• Dewan Housing Finance’s (DEWH) 1QFY18 PAT grew 29% YoY to INR2.61b. Strong AUM growth, YoY reduction in C/I ratio and continued decline in cost of funds were key highlights of the quarter.
• Disbursement growth of 33% YoY, the strongest in 13 quarters, led to AUM growth of 5.6% QoQ/22.5% YoY in the quarter. We expect DEWH to maintain this growth rate, given the large untapped opportunity and the sufficient capital it has to support this growth.
• Loan mix was largely unchanged, though there was a 70bp sequential increase in the share of builder loans. We expect the share of builder loans to continue increasing at this pace for the remainder of the year, post which it should remain stable.
• The liability mix was largely stable sequentially. Reduction in cost of funds continues (12bp QoQ), albeit at a slower pace than in the past few quarters.
• pex grew 15% YoY to INR1.6b, resulting in 280bp reduction in the calculated C/I ratio to 25.3%. We expect prudent cost rationalization to continue over the next 2-3 years. This would be the key driver for strong PAT growth over the medium term, in our view.