5 April 2017

Update | Sector: Financials

Dewan Housing Finance

BSE SENSEX S&P CNX
29,910 9,238 CMP: INR374 TP: INR500 (+34%) Buy
Fuelled with capital
Upgrading estimates and target price
Stock Info
 DEWH has received all approvals for the sale of stake in its insurance JV to a wholly-
Bloomberg DEWH IN
Equity Shares (m) 299.8 owned subsidiary. The final valuation for the 50% stake has been set at INR20b
52-Week Range (INR) 372/183 (upper end of the range provided earlier).
1, 6, 12 Rel. Per (%) 7/73/70  We upgrade our estimates as well as target price, given significant accretion to net
M.Cap. (INR b) 117.0 worth without any shareholding dilution. Given the sufficient capital in place, we
M.Cap. (USD b) 1.8 upgrade our AUM CAGR estimate to ~20% over FY17-19 from 18% earlier. Accretion
12M Avg Val (INR M) 649 of ~25% to net worth would drive up NIM for FY18/19 by ~10bp.
Free float (%) 60.7  We increase our FY18/19 PAT estimates by ~5% and BV estimates by ~25% to factor
Financials Snapshot (INR b) in the stake sale (higher growth and margin).
Y/E Mar 2017E 2018E 2019E
NII 17.8 22.0 26.3
All milestones crossed – net worth accretion of ~25%
PPP 15.8 19.8 23.7
DEWH received final shareholder approval for stake sale in its life insurance JV to
Adj. PAT 9.2 11.5 13.4
EPS (INR) 29.4 36.7 42.7 a wholly-owned subsidiary. Valuation for the 50% stake has been finalized at
EPS Gr. % 17.7 24.8 16.4 INR20b (upper end of the range provided earlier). DEWH would infuse equity
BV (INR) 251 278 311 capital of INR1b in its subsidiary, DIL. The subsidiary would in turn issue CCPS
RoAA (%) 1.3 1.4 1.3 worth INR19b to Wadhawan Global Capital (promoter of DEWH) to help fund its
RoE (%) 14.3 13.9 14.5
purchase of the insurance stake. With the conclusion of the deal, DEWH’s net
Payout (%) 23.2 23.2 23.2
Valuations
worth has increased by ~25% (we have factored in gains as a part of net worth
P/E (x) 12.7 10.2 8.7 directly).
P/BV (x) 1.5 1.3 1.2
P/ABV (x) 1.5 1.3 1.2 Upgrading FY18/19 estimates to factor in high growth and better NIMs
Div. Yld % 1.6 2.0 2.3 The current book value of DEWH’s investments in the insurance JV is a mere
Shareholding pattern (%) INR310m. As a result, virtually the entire proceeds from the stake sale would be
As On Dec-16 Sep-16 Dec-15
capital gains, exempt from tax (although MAT is expected) due to the sale
Promoter 39.3 39.3 34.9
DII 6.0 3.9 2.0 structure. We revise our FY18/19 EPS estimates by ~5% and BV estimates by
FII 26.4 29.5 35.5 ~25%, driven by profit on sale of investment as well as improved growth/margin
Others 28.4 27.3 27.6 outlook for FY18/19. We revise AUM growth estimates to ~20% vs ~18% earlier
FII Includes depository receipts and increase NIMs estimates by 10bp.
Stock Performance (1-year)
Dewan Hsg. Fin. Significant improvement in capital adequacy without equity dilution
Sensex - Rebased
400 We believe this transaction would shore up tier-I ratio by ~350bp, taking it to
350 more than 15%, the highest in five years. More importantly, this would be
300 achieved without any equity dilution (our calculations suggest that if DEWH were
250 to achieve 15% tier-I ratio by raising equity capital, the dilution would be ~18%).
200
Strong capitalization and opportunities in the space would help sustain strong
150
AUM CAGR of 20%+ for the next three years.
Jun-16
Mar-16

Sep-16

Dec-16

Mar-17

Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415

Piran Engineer (Piran.Engineer@MotilalOswal.com); +91 22 6129 1539
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Dewan Housing Finance

Refer our latest report on DEWH

dated 14 February 2017 Valuation and view
DEWH continues to capitalize on its mortgage lending expertize in an
underpenetrated market. Its focus on being a core mortgage finance player is
demonstrated by the fact that it is divesting non-core assets such as the life
insurance business. Moreover, the management’s continued commitment towards
lowering operating cost should improve return ratios as well as investor sentiment.
While the stock has re-rated since the announcement of this transaction in
February, we believe the gradual transformation of DEWH to a core mortgage player
with strong growth and healthy return ratios would result in further re-rating. We
use the RI model with Rf of 7%, CoE of 13.8% and terminal growth rate of 5% to
value the stock. We revise our target price to INR500 (1.6x FY19E BV) from INR405
earlier. Buy.

Exhibit 1: Upgrade estimates to factor in higher growth and better NIMs

INR b Old Est. New Est. % Chg
FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19
NII 17.8 21.2 25.2 17.8 22.0 26.3 0.2 4.1 4.5
Other Income 3.8 4.3 5.0 3.8 4.4 5.1 0.0 1.1 1.6
Total Income 21.6 25.5 30.2 21.6 26.4 31.4 0.2 3.6 4.0
Operating Expenses 5.8 6.5 7.4 5.8 6.6 7.6 0.5 2.0 3.5
Operating Profits 15.8 19.0 22.8 15.8 19.8 23.7 0.1 4.1 4.2
Provisions 1.9 2.5 3.5 1.9 2.4 3.5 -2.6 -3.8 -0.4
PBT 13.9 16.5 19.3 13.9 17.4 20.2 0.4 5.4 5.0
Tax 4.7 5.6 6.6 4.7 5.9 6.9 0.1 5.0 4.7
PAT 9.2 10.9 12.7 9.2 11.5 13.4 0.6 5.5 5.2
RoA 1.2 1.2 1.3 1.3 1.4 1.3
RoE 16.6 16.9 17.3 14.3 13.9 14.5
EPS 29.2 34.8 40.6 29.4 36.7 42.7 0.6 5.5 5.2
BV 197.0 222.8 254.2 250.6 277.9 311.0 27.2 24.7 22.3
AUM 813 959 1,133 828 994 1,201 1.8 3.7 6.0
Source: MOSL, Company
** We have taken stake sale gain as part of net worth directly rather than routing it through
P&L. We have assumed 12.5% tax on the gain.

Exhibit 2: P/E chart (1 year forward) Exhibit 3: P/B chart (1 year forward)
P/E (x) 15 Yrs Avg(x) P/B (x) 15 Yrs Avg(x)
5 Yrs Avg(x) 10 Yrs Avg(x) 5 Yrs Avg(x) 10 Yrs Avg(x)
16 3.0 ROE (%) 36.0

12 10.3 2.3 30.0

1.6
8 6.8 1.5 24.0
6.5 1.1
4 5.9
0.8 0.9 18.0

0 0.0 12.0
Jul-04

Nov-06

Jun-11
May-03

Nov-14
Apr-10
Mar-02

Sep-05

Dec-07
Feb-09

Aug-12
Sep-13

Jan-16
Mar-17

Jul-04

Nov-06

Jun-11
May-03

Nov-14
Apr-10
Mar-02

Sep-05

Dec-07
Feb-09

Aug-12
Sep-13

Jan-16
Mar-17

Source: MOSL, Company Source: MOSL, Company

5 April 2017 2
 Dewan Housing Finance

Valuation matrix

Rating CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%)
66
FY19E (INR) (USDb) FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E
ICICIBC* Buy 277 24.8 17.9 21.8 10.8 8.1 157.9 173.3 1.22 1.02 1.22 1.28
HDFCB Buy 1,442 56.7 68.3 81.5 21.1 17.7 380 443 3.79 3.26 1.88 1.86
AXSB Neutral 491 18.0 25.0 46.8 19.7 10.5 251 290 1.95 1.69 0.93 1.48
KMB* Buy 872 24.6 32.3 41.3 27.0 21.1 238 278 3.66 3.14 1.78 1.95
YES Buy 1,549 10.0 97.0 118.4 16.0 13.1 468 562 3.31 2.76 1.85 1.84
IIB Buy 1,409 12.9 58.7 71.2 24.0 19.8 383 444 3.68 3.17 1.85 1.86
IDFC Bk Neutral 59 3.1 3.9 4.9 15.1 12.2 46 49 1.30 1.20 1.06 1.08
FB Buy 91 2.4 5.5 6.9 16.7 13.1 55 60 1.67 1.52 0.76 0.78
DCBB Neutral 171 0.7 8.6 10.9 19.8 15.7 77 88 2.21 1.94 0.92 0.96
JKBK Neutral 75 0.6 13.0 15.4 5.8 4.9 117 129 0.64 0.58 0.69 0.72
SIB Neutral 21 0.4 3.1 3.8 6.9 5.7 32 35 0.67 0.61 0.54 0.59
Equitas Buy 170 0.9 6.9 8.7 24.4 19.5 74 83 2.29 2.05 2.04 1.76
RBL Buy 494 2.8 17.5 24.6 28.2 20.1 129 148 3.84 3.33 1.20 1.31
Private Aggregate
SBIN (cons)* Buy 293 35.0 21.6 29.5 12.0 8.7 247 271 1.05 0.95 0.46 0.57
PNB Buy 151 4.9 12.7 17.2 11.8 8.8 193 207 0.78 0.73 0.36 0.44
BOI Neutral 139 2.3 17.1 23.2 8.2 6.0 251 269 0.56 0.52 0.27 0.32
BOB Buy 173 6.2 18.3 25.3 9.4 6.8 166 186 1.04 0.93 0.57 0.71
CBK Neutral 303 2.5 36.7 56.0 8.3 5.4 524 567 0.58 0.53 0.31 0.42
UNBK Neutral 156 1.7 30.5 45.3 5.1 3.4 328 368 0.47 0.42 0.45 0.59
OBC Neutral 141 0.8 19.6 24.1 7.2 5.9 417 435 0.34 0.32 0.26 0.28
INBK Buy 280 2.1 32.2 38.1 8.7 7.3 329 358 0.85 0.78 0.69 0.72
Public Aggregate
Banks Aggregate
HDFC* Buy 1,502 36.4 38.4 43.2 23.6 18.9 225 283 4.01 2.88 2.35 2.37
LICHF Buy 616 4.8 44.7 52.6 13.8 11.7 247 289 2.49 2.13 1.52 1.53
IHFL Buy 997 6.5 86.2 109.6 11.6 9.1 316 362 3.15 2.76 3.22 3.25
GRHF Neutral 396 2.2 9.8 11.7 40.3 33.7 34 41 11.77 9.73 2.41 2.38
REPCO Buy 702 0.7 34.2 40.5 20.6 17.4 210 247 3.34 2.84 2.17 2.15
DEWH Buy 367 1.6 35.6 42.0 10.3 8.7 228 260 1.61 1.41 1.21 1.26
Housing Finance
RECL Neutral 181 5.5 35.3 39.9 5.1 4.5 195 226 0.93 0.80 2.68 2.63
POWF Neutral 146 5.9 25.5 40.5 5.7 3.6 167 197 0.87 0.74 2.12 2.95
Infra Finance
SHTF Buy 1,078 3.8 77.9 96.7 13.8 11.1 557 633 1.94 1.70 2.66 2.94
MMFS Buy 315 2.7 11.1 13.9 28.5 22.7 117 126 2.68 2.51 1.35 1.49
BAF Buy 1,174 9.7 44.6 59.3 26.3 19.8 204 255 5.76 4.61 3.41 3.42
SCUF Buy 2,306 2.3 130.5 164.2 17.7 14.0 866 1,003 2.66 2.30 3.63 3.85
MUTH Buy 369 2.3 34.7 40.5 10.6 9.1 182 208 2.03 1.78 4.13 4.15
SKSM Neutral 807 1.7 39.5 51.5 20.4 15.7 240 291 3.37 2.77 4.24 3.91
UR=Under Review*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in
subsidiaries

5 April 2017 3
 Dewan Housing Finance

Financials and valuations

Income Statement (INR Million)
Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Operating Income 28,633 37,977 46,705 57,160 69,706 85,294 97,934 116,866
Interest Expended 23,496 31,194 37,826 44,596 54,900 67,490 75,888 90,559
Net Interest Income 5,138 6,783 8,879 12,564 14,806 17,805 22,046 26,307
Change (%) 28.6 32.0 30.9 41.5 17.8 20.3 23.8 19.3
Fee Income 2,395 1,992 2,280 1,860 1,724 2,034 2,441 2,929
Treasury Income 1,091 644 671 769 1,689 1,723 1,895 2,084
Other Income 275 177 21 27 49 50 50 50
Net Income 8,899 9,596 11,851 15,221 18,267 21,611 26,432 31,370
Change (%) 24.9 7.8 23.5 28.4 20.0 18.3 22.3 18.7
Operating Expenses 3,349 3,039 3,800 4,740 5,495 5,829 6,645 7,649
Operating Profit 5,551 6,557 8,051 10,480 12,772 15,782 19,787 23,722
Change (%) 21.6 18.1 22.8 30.2 21.9 23.6 25.4 19.9
Provisions 463 450 700 1,050 1,750 1,850 2,405 3,487
% of average loans 0.20 0.2 0.2 0.2 0.3 0.3 0.3 0.3
Extra ordinary Income 250 0 0 0 0 0 0 0
PBT 5,338 6,107 7,351 9,430 11,022 13,932 17,382 20,234
Tax 1,304 1,588 2,061 3,218 3,730 4,723 5,892 6,859
Tax Rate (%) 24.4 26.0 28.0 34.1 33.8 33.9 33.9 33.9
Reported PAT 4,034 4,519 5,290 6,213 7,292 9,209 11,489 13,375
Change (%) 12.9 12.0 17.1 17.4 17.4 26.3 24.8 16.4
Adjusted PAT 3,784 4,519 5,290 6,213 7,292 9,209 11,489 13,375
Change (%) 17.5 19.4 17.1 17.4 17.4 26.3 24.8 16.4
Proposed Dividend 478 720 1,202 968 2,811 2,146 2,677 3,116

Balance Sheet (INR Million)

Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Share Capital 1,168 1,282 1,284 1,457 2,918 3,130 3,130 3,130
Reserves & Surplus 19,159 31,089 34,465 44,901 47,252 75,301 83,862 94,212
Net Worth 20,327 32,371 35,750 46,358 50,170 78,431 86,993 97,342
Borrowings 246,717 322,527 398,749 494,456 610,496 681,173 836,582 1,021,032
Change (%) 19.2 30.7 23.6 24.0 23.5 11.6 22.8 22.0
Total Liabilities 268,971 354,898 434,498 540,814 660,666 759,605 923,574 1,118,374
Investments 2,141 2,750 7,215 10,062 8,932 11,394 13,854 16,776
Change (%) -46.8 -36.3 71.9 19.8 17.9 17.5 16.6 16.0
Loans 254,694 342,219 408,732 515,109 622,951 728,528 894,740 1,080,457
Change (%) 27.8 34.4 19.4 26.0 20.9 16.9 22.8 20.8
Net Fixed Assets 2,582 4,379 9,877 9,846 7,805 8,195 8,605 9,035
Net Current Assets 6,059 5,549 8,674 5,796 20,978 11,487 6,376 12,106
Total Assets 268,971 354,898 434,498 540,814 660,666 759,605 923,574 1,118,374
E: MOSL Estimates

5 April 2017 4
 Dewan Housing Finance

Financials and valuations

Ratios
Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Spreads Analysis (%)
Avg. Yield - Housing loans 12.6 12.3 11.6 11.3 11.0 11.2 10.8 10.7
Avg. Cost of Funds 10.4 11.0 10.5 10.0 9.9 10.5 10.0 9.8
Net Interest Margin (On AUM) 2.263 2.20 2.2 2.5 2.3 2.3 2.4 2.4

Profitability Ratios (%)

RoAE 21.1 17.1 15.5 15.1 15.1 14.3 13.9 14.5
RoAA 1.53 1.45 1.34 1.27 1.21 1.30 1.37 1.31
Int. Expended/Int.Earned 82.1 82.1 81.0 78.0 78.8 79.1 77.5 77.5
Other Inc./Net Income 42.3 29.3 25.1 17.5 18.9 17.6 16.6 16.1

Efficiency Ratios (%)

Fees/Operating income 43.1 30.4 28.3 17.7 13.5 12.9 12.3 12.3
Op. Exps./Net Income 37.6 31.7 32.1 31.1 30.1 27.0 25.1 24.4
Empl. Cost/Op. Exps. 35.5 46.3 46.4 41.4 41.4 45.3 46.9 48.1

Asset-Liability Profile (%)

Loans/Borrowings Ratio 96.9 94.2 97.6 96.0 98.0 93.5 93.5 94.5
Debt/Equity (x) 12.1 10.0 11.2 10.7 12.2 8.7 9.6 10.5
Gross NPA (INR Mn) 1,316 2,393 3,175 4,851 5,731 6,877 8,252 9,903
Net NPA (INR Mn) 0 1,560 2,099 3,460 3,610 4,470 5,116 5,942

Valuations (Consolidated)
Book Value (INR) 87 126 139 159 172 251 278 311
Growth (%) 16.8 45.1 10.3 14.3 8.1 45.7 10.9 11.9
Price-BV (x) 4.3 3.0 2.68 2.35 2.2 1.5 1.3 1.2
Adjusted BV (INR)* 72.0 126 139 159 169 250 278 311
Price-ABV (x) 5.2 3.0 2.68 2.35 2.2 1.5 1.3 1.2
OPS (INR) 23.8 26 31 36 44 50 63 76
Growth (%) 8.7 7.6 22.6 14.8 21.7 15.2 25.4 19.9
Price-OP (x) 15.7 14.6 11.9 10.4 8.5 7.4 5.9 4.9
EPS (INR) 14.8 17.6 20.6 21.3 25.0 29.4 36.7 42.7
Growth (%) 5.6 18.7 16.9 3.5 17.2 17.7 24.8 16.4
Price-Earnings (x) 25.2 21.2 18.1 17.5 15.0 12.7 10.2 8.7
Dividend Per Share 1.8 2.5 4.4 3.5 20.0 5.9 7.3 8.5
Dividend Yield (%) 0.5 0.7 1.2 0.9 5.3 1.6 2.0 2.3
E: MOSL Estimates

5 April 2017 5
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Disclosure of Interest Statement Dewan Housing Finance

 Analyst ownership of the stock No
 Served as an officer, director or employee - No

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not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in
the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be
engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by
the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal
Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
3 April 2017 Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com 6