MOSL: DEWAN HOUSING (Buy)-Strong performance on all fronts-Re-rating to continue

​​Dewan Housing: Strong performance on all fronts; Re-rating to continue

(DEWH IN, Mkt Cap USD2.1b, CMP INR438, TP INR559, 28% Upside, Buy)

• Dewan Housing Finance's (DEWH) 4QFY17 PAT grew 31% YoY to INR2.48b (excluding the gain on the sale of 50% stake in the life insurance subsidiary). Strong AUM growth, a YoY reduction in C/I ratio and an improvement in spreads were the highlights of the quarter.
  
• Disbursement growth picked up sequentially and was 11.2% YoY for the quarter. AUM growth was healthy at 6.7% QoQ/20.2% YoY, with AUM crossing INR835b.
  
• The company continues to diversify into non-retail lending (its share in total loan book increased from 31% to 34% QoQ). Borrowing mix, however, was largely stable. The company continues to reduce its cost of borrowings by negotiating better rates with banks and refinancing maturing NCDs at lower rates.
  
• Adj. PAT for FY17 increased 27% YoY to INR9.27b, with RoA/RoE of 1.2%/14.4%. RoE is depressed due to the higher base from capital infusion from stake sale of subsidiary on 31 March 2017.
  
• Reported margin expanded 8bp YoY, but shrunk 3bp QoQ to 3.04%. Reduction in cost of funds to 8.84% (-84bp YoY, -45bp QoQ) was the main driver of spread improvement. 
  
• C/I ratio (-460bp YoY to 27.2%) was in line with the trend witnessed over past three quarters. For FY17, C/I ratio declined 320bp YoY to 26.9%. We expect C/I ratio to decline to 24.2% by FY19.