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MOSL: DEWAN HOUSING (Buy)-Strong growth, stable cost ratios-re-rating to continue

Dewan Housing: Strong growth, stable cost ratios; re-rating to continue

(DEWH IN, Mkt Cap USD3.0b, CMP INR614, TP INR720, 17% Upside, Buy)

• Dewan Housing Finance’s (DEWH) 3QFY18 PAT grew 25% YoY to INR3.1b. The quarter was characterized by strong AUM growth, a stable C/I ratio and a secular decline in cost of funds.
• AUM grew 29% YoY to INR1t, largely driven by 54% YoY disbursement growth. DEWH reported disbursements of INR108b, with the highest growth rate in the last 19 quarters. We note that sanctions grew 75% YoY to INR166b. This strong growth was largely led by the non-home portfolio.
• Loan mix is now more skewed toward LAP (at 18%, +20bp QoQ) and builder finance (at 15%, stable QoQ). Contribution of home loans reduced by 70bp QoQ to 63% of loan book.
• Calculated NIM remained largely unchanged at 3.03%, although we note a secular decline in calculated cost of funds (-10bp QoQ to 8.75%). Funding mix remained largely stable, with banks and NCDs contributing 41% and 41%, respectively.
• Opex grew 19% YoY to INR1.8b, manifesting into PPoP of INR5.6b (+35% YoY) and a cost-to-income ratio of 24.1% (+20bp QoQ). Continued focus on cost rationalization should translate into higher PAT over the medium term, in our view.