Despite industry-wide pressure on margins, Dewan Housing was also able to report improvement in its net interest margin (NIM).
While the management’s action of increasing prime lending rates in line with the increase in borrowing cost helped it to improve its margins, strong fee income (mostly due to higher insurance commission and processing fees from retail loans) helped to show higher net profit growth.
More analysts are beginning to give this counter a buy rating because of its accelerating growth rates. For example, its asset under management (AUM) grew 37% y-oy during the last quarter. While its home loan segment showed a steady growth rate of 24%, there was significant growth in segments like loan against property (73%), SME (71%) and project loans (49%). Due to higher growth rates from other segments, share of home loan segment declined to 59% from 72% two years back. The share of loan against properties, project loan and SME segments are now placed at 21%, 16% and 4% respectively.
The main advantage of Dewan Housing is its wide operational base—spread across 350 locations, mostly in Tier II and III cities. Dewan Housing is also aggressive in far-flung suburbs of metros and concentrates mostly on the lower middle income segment.
However, Dewan Housing is consolidating its back-end operations in a few locations and this is helping it to reduce cost and also improve asset quality through better vetting of loans. Dewan Housing was able to maintain its asset quality—gross NPA of only 0.93%, down from 0.97% in the first quarter of 2017-18. It can also boast of a provision coverage ratio of 107%. However, increasing share of non-housing loan segments may create problems in asset quality later and may results in higher provisioning costs in coming years.
Performance of Dewan HFC compared with the Sensex. Stock price and index value normalised to a base of 100. Source: ETIG database & Bloomberg
Higher growth rate is the main attraction of this counter now and as per consensus estimate, the net profit of Dewan Housing is expected to grow by 27% per annum between 2017-18 and 2019-20. Despite the significant rally in the past five years, it is still valued reasonably. However, there is a little sluggishness in its share price now and therefore, investors should moderate their return expectations from this counter.
Selection Methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.