Buy Sell Stock Tips & Recommendations On Company: Dewan Housing Finance

Date Stock Expert Stock Buy or sell advice
May 26, 2017 , , Dewan Housing Finance Ltd (DHFL) is the number one wealth creation idea. Dewan Housing Finance is the fourth largest housing finance company in India. The company is a prominent player in the tier2, tier3 markets and has been growing at a very decent pace both in terms of income and profitability. In fact, in the last four years between FY12 and FY16, loan book growth has been quite impressive at almost 35% odd and our sense is that FY18 looks a lot better with the government pushing affordable housing. In fact, the company’s income composition has also been well diversified with almost 75% of its income coming from the home loan segment, another 1819% coming from the LAP segment while the rest coming in from the SME and the project loan segment. Our sense is that FY18 loan book growth should pan out at around 2023% as per the management and asset quality is likely to remain strong, gross NPA levels had already been around 0.84% last year with almost nil NPAs on the balance sheet level.
May 5, 2017 , Gujarat Ambuja Exports was incorporated in 1991 and largely specialises in agro processing, especially soya oil processing. It is also into cotton yarn and power generation. In fact, almost 50% of the revenue comes from agro processing. Another 40% comes from a starch through corn processing and this has been a very value added kind of segment for the company.

The cotton yarn business is not a very significant business. It contributes about 6%, power contributes about 3% to 4%. Coming to the financials of the company, it has been posting quite reasonably good numbers since the last couple of years.

Last year, the company posted a top line of Rs 2700 crore, EBITDA of Rs 185 crore and a bottom line of Rs 100 crore last year. The traction in the first nine months of the current financial year that is FY17 has continued pretty well. We have seen a top line of almost Rs 2300 crore for the first nine months which is up by almost 30% odd while both EBITDA as well as the bottom line have multiplied by almost 70%.

In fact, the company has already recorded a bottom line of Rs 125 crore for the first nine months as compared to Rs 100 crore last year.

Most of the improvement has come in from the maize processing unit where margins are almost as twice as that of the soya unit.

The second stock we like is a housing finance stock which we had recommended earlier also. It is Dewan Housing Finance. We believe that Dewan Housing Finance is going to be a key beneficiary of the affordable housing segment and is a very prominent player in the tier-2, tier-3 city markets.

The company’s overall loan book consists of almost 75-80% retail borrowers, about 20% comes from the corporate loan book and clearly loan against property constitutes another 15-20%.

Looking at the kind of growth in the loan book in the last three quarters, the company has done commendably well despite the kind of demonetisation impact and we believe that at least 19-20% loan book growth is easily possible.

In fact, in terms of asset quality the management has been quite strong on its credit monitoring mechanism and the asset quality levels both at the gross and the net level are quite low, in fact below 1%.

Our sense is that not only the fourth quarter for FY17 is going to be a strong quarter but clearly FY18 is also going to be a very strong quarter.

We expect for FY17, the company should post a profit of Rs 921 crore and thereafter for FY18 and FY19, the average growth in the profit should be about 17-18% with strict monitoring on the asset quality.

We suggest that investors should buy at the current level and despite the stock having moved up there is a good potential and a risk reward ration even from the current levels. We have a target of around Rs 501 over the next 12-15 months.