Strong business at attractive valuation…
Dewan Housing Finance Corporation (DHFL) is the 3rd largest private sector housing finance company (HFC) in terms of AUM in India. It primarily provides housing finance to individuals, especially to the low and lower-middle-income groups in Tier II, III and IV cities. The company also offers non-housing loans such as loan against properties (LAP), SME and developer loans.
Valuation: Over the past decade, DHFL has built an optimal, comprehensive and scalable business model focused on retail mortgages. Hence, DHFL is bound to be a key beneficiary of government’s initiative to promote affordable housing given its presence in tier II/III cities coupled with lower ticket size. As a result, we foresee impressive AUM accretion of 20% CAGR and healthy earnings (adjusted) CAGR of 18% over FY17-19E. DHFL still trades at a significant discount (1.5x FY19E P/ABV) to other HFCs (>2.0x FY19E P/ABV). We expect this gap to further narrow given the company’s strong growth trajectory over near to medium term. Hence, we reiterate our BUY rating on the stock with a target price of Rs500 (1.7x FY19E P/ABV).
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