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

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

(DEWH IN, Mkt Cap USD2.9b, CMP INR602, TP INR690, 15% Upside, Buy)

• ​Dewan Housing Finance’s (DEWH) 2QFY18 PAT grew 26% YoY to INR2.9b. The quarter was characterized by sturdy AUM growth, healthy decline in C/I ratio, continued decline in cost of funds, and mild expansion in return ratios.
  
• AUM grew 25% YoY to INR941b, largely driven by 50% YoY disbursement growth. DEWH reported disbursements of INR100b, the highest in the last 14 quarters. Even sanctions grew 68% YoY to INR142b. This strong growth was largely on account of non-home portfolio.
  
• Loan mix is now more skewed toward LAP (+120bp QoQ) and builder finance (+40bp QoQ). The contribution of home loans reduced by 180bp QoQ to 63.7% of the loan book. On a YoY and QoQ basis, non-retail loans contributed 60%+ of the incremental growth.
  
• NIM remained largely unchanged at 3.04%, though we note a secular decline in cost of funds (-10bp QoQ to 8.63%). Funding mix remained largely stable, with banks and NCDs contributing 43% and 40%, respectively.
  
• Opex grew 21% YoY to INR1.7b, manifesting into PPoP of INR5.4b (+36% YoY) and cost-to-income ratio of 23.9% (-140bp QoQ). Continued focus on cost rationalization should translate into higher PAT in the medium term, in our view.
  
• Asset quality was stable, with GNPA ratio at 0.96%.