Positive on Dewan Housing Finance - Motilal Oswal

DEWAN HOUSING: Acquires India's 4th largest housing finance company at 2x trailing book against DHFL at 2.4x; Positive

- Dewan Housing Finance (DHFL) has acquired India's 4th largest standalone housing finance company with a loan book of ~Rs48b as on Sep-10.

- Deutsche Post Bank Home Finance (DPHL) has strong pan-India distribution network with a focus on the metro and non-metro cities.

- DHFL has valued DPHL at 2x trailing book and ~1.6% forward book (FY12). Net worth of DPHL as of 1HFY11 was Rs5.4b and PAT was ~Rs375m.

- DHFL has raised Rs3.5b of subordinated debt and will raise ~Rs4b more to fund acquisition as of now. Cost of debt is ~10.5%.

- Deal will help DHFL to get into upper middle income segment; With the acquisition of DPHL, DHFL will be present across the spectrum.

- The acquisition would boost DHFL's outstanding loans by ~49% (based on FY10 data) and DHFL would be close to achieving balance sheet size of Rs200b by end FY11. This purchase would narrow the gap of DHFL with larger rivals like LIC Housing Finance. Post the acquisition, DHFL would be 40% of LICHF. We will review our numbers post clarity from the management on the accounting treatment. Currently, we maintain our positive view on the stock.

Source : Equity Bulls

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