1

Peer Group

Investment Highlights

Stock Data

Sector Financial Services

Face Value (Rs.) 10.00

52 wk. High/Low (Rs.) 328.70/158.50

Volume (2 wk. Avg.) 55619

BSE Code 511072

Market Cap (Rs.mn.) 32904.45

Financials (Rs.mn.) FY10 FY11E FY12E

Net Sales 9905.53 12679.08 14454.15

EBIDTA 8748.58 11559.88 13191.85

PAT 1506.92 2642.18 3150.17

EPS (Rs.) 18.37 25.37 30.25

P/E (x) 17.20 12.45 10.45

Dewan Housing Finance Corp. Ltd (DHFL)

BUY F

I

R

S

T

C

A

L

L

R

E

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SYNOPSIS

DHFL is the second housing finance company set up in India and provides access to housing finance to lower and middle income Indians.

DHFL and its subsidiary DHFL Vysya Housing Finance Ltd (as Sponsors) have promoted a housing finance Company under the name and style "Aadhar Housing Finance Pvt. Ltd"

DHFL received its board approval to issue equity shares to Qualified Institutional Buyers (QIBs) through Qualified Institutional Placement (QIP) up to an amount of Rs 375 crore.

The board has given its approval to company to issue equity shares to Caledonia Investments Plc, UK (FII) up to an amount of Rs 25 crore, on preferential allotment basis and equity shares to the promoters/promoter group of the company up to an amount of Rs 100 crore, on preferential allotment basis.

DHFL is considering of setting up a new subsidiary along with International Finance Corporation (IFC) to offer home loans to customers belonging to low-income group.

DHFL Venture Capital has entered into a joint venture (JV) with the Redwood Group, a real estate fund having investments in Europe and Asia, to raise funds for investing in logistics and warehousing.

Net Sales and PAT of the company are expected to grow at a CAGR of 28% & 54% over FY09 to FY12E.

1 Year Comparative Graph

DEWAN H.FIN. BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.316.00 Rs.363.00

Share Holding Pattern

October 27, 2010

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Peer Group Comparison

Name of the company

CMP (As on Oct 27,

2010) Market Cap. (Rs. Mn.)

EPS (Rs.)

P/E (x)

P/BV (x) Dividend (%)

DEWAN FINANCE 316.00 32904.45 21.76 14.55 3.69 30

HDFC FINANCE 679.50 99312.13 21.21 32.04 6.53 360

LIC HOUSING 1400.65 13296.73 85.67 16.35 3.93 150

GRUH FINANCE 413.40 1444.54 23.09 17.90 5.45 65

Investment Highlights

• Q2 FY11 Results Update

DHFL (Dewan Housing Finance Corporation Ltd), India`s leading housing finance

company, has reported 149.18% increase in net profit to Rs. 934.71 million for the

quarter ended September 30, 2010 as against Rs 375.11 million in the

corresponding quarter last fiscal. The company also reported 34.43% increase in

total income to Rs 3308.53 million for the third quarter ended Sep.30, 2010.

The company recorded a robust growth of 70.52 % to Rs 1669.00 million in

loan disbursements during the second quarter ended Sept. 30, 2010 as against Rs

979.00 million in the corresponding quarter previous year. The company recorded a

robust growth of 88.47% to Rs 2225.00 million in loan sanctions during the second

quarter ended Sept. 30, 2010 as against Rs 1180.00 million in the corresponding

quarter previous year.

Quarterly Results - Standalone (Rs in mn)

As at Sep - 10 Sep - 09 %Change

Net Sales 3302.48 2455.37 34.50

Net Profit 934.71 375.11 149.18

Basic EPS 8.98 4.58 96.20

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• Allotment of shares

Dewan Housing Finance Corporation has allotted 23,494 fully paid up equity shares of Rs. 10/- each to employees of the Company in terms of the Employee Stock Option Scheme (ESOS). The said equity shares rank pari-passu in all respects with the existing equity shares of the Company.

As a result of exercise of options and the consequent allotment of the equity shares paid up share capital of the Company stands increased from the present Rs.

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104,12,79,750/- divided into 10,41,27,975 equity shares of face value of Rs. 10/- each.

• Investment by DHFL Dewan Housing Finance Corporation Ltd (DHFL) and its subsidiary DHFL Vysya Housing Finance Ltd (DVHL) (as Sponsors) have promoted a housing finance Company under the name and style "Aadhar Housing Finance Pvt. Ltd" [AHFL]. The Sponsors have entered into transaction agreement(s) with International Finance Corporation [IFC]. By virtue of this, IFC has agreed to subscribe upto 2, 00, 00,000 equity shares of Rs. 10/- each aggregating to Rs. 20 crore of AHFL on fully diluted basis i.e. 20% of the paid up capital of AHFL. AHFL, in the initial period propose to target market in retail housing loans in the low income segment of the Indian population in certain states.

• Receives board approval to raise Rs 375 crore via QIP

Dewan Housing Finance Corporation, a leading housing finance company, received its board approval to issue equity shares to Qualified Institutional Buyers (QIBs) through Qualified Institutional Placement (QIP) up to an amount of Rs 375 crore. The board has also given its approval to issue equity shares to Caledonia Investments Plc, UK (FII) up to an amount of Rs 25 crore, on preferential allotment basis and equity shares to the promoters/promoter group of the company up to an amount of Rs 100 crore, on preferential allotment basis.

Further, the board has given its nod for enhancement of Foreign Institutional Investors (FIIs) investment limit in the paid-up capital of the company as per Foreign Exchange Management Act (FEMA) Guidelines.

• Setting up a new subsidiary along with IFC

Dewan Housing Finance Corporation, a leading housing finance company, is considering setting up a new subsidiary along with International Finance Corporation (IFC) to offer home loans to customers belonging to low-income group. The subsidiary will be formed in the nature of 80:20 joint ventures (JV) between Dewan Housing and IFC. It will concentrate on customers with income range starting from Rs 3,500 per month and will disburse loans to the tune of Rs 5 lakh. Meanwhile, the company is yet to receive regulatory nod from National Housing Bank for the proposed venture.

• Raising of promoters stake

Dewan Housing Finance Corporation's (DHFL) promoters have raised their holding in the company. Kapil Wadhawan, one of the promoters of the company, has acquired 30 lakh shares representing 3.66% stake in DHFL. Following this acquisition, his stake in the company has increased to 12.11% from earlier 8.45%.

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Similarly, another promoter of the company -- Dheeraj Wadhawan -- has also bought 30 lakh shares in the mortgage lender. Following this acquisition, his stake in the company stands increased to 11.35% from 7.68%.

Besides the two promoters, Wadhawan Holdings -- a promoter group company -- has also acquired 17 lakh shares representing 2.07% stake in DHFL. Its holding in the company has increased to 10.47% following this acquisition.

• DHFL Venture Capital in JV with Redwood

Dewan Housing Finance Corporation (DHFL) Venture Capital has entered into a joint venture (JV) with the Redwood Group, a real estate fund having investments in Europe and Asia, to raise funds for investing in logistics and warehousing. The JV will raise approximately USD 150-200 million from the international markets and an additional of Rs 1.5-Rs 2 billion from the domestic markets. The JV will be a 50:50 partnership.

• Care reaffirms AA+ rating

Credit rating agency, CARE has reaffirmed AA+ rating to outstanding Non Convertible Debentures and Bank Loans of Dewan Housing Finance Corporation (DHFL) and AA rating to outstanding Subordinated Debt and Non Convertible Preference Shares of DHFL.

CARE has also reaffirmed AA+ (FD) rating assigned to the existing Fixed Deposit programme of DHFL having a limit of Rs 2,000 million. Instruments with this rating are considered to offer high safety for timely servicing of debt obligations. Such instruments carry very low credit risk.

Company Profile

Dewan Housing Finance Corpn, founded by Rajesh Kumar Wadhawan on 11th of April 1984 with its registered office in Mumbai, provides access to housing finance to lower and middle income Indians. It is the second housing finance company set up in India.

Initially DHFL disbursed funds from its own equity contribution and had a return on equity of less than 8% at a time when the interest rates were about 18%. Over two decades later, DHFL is still profitably doing what its founder intended it to do. It has so far disbursed loans amounting to over 53 billion; its non performing assets are the lowest in the Industry.

Today, DHFL has an asset base of over Rs 3,580 crores, with a strong presence across India through its 72 branches and 116 service locations. DHFL caters to a large section of Indians working in the Middle East through its over seas branch in Dubai.

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Objectives of the company:

• To become easily accessible to every Indian who desires to own a home,

• Understand customer’s inner needs and speak their language,

• Go to any length to make sure that customers don’t feel intimidated,

• Continuously configure their credit policy to make sure the maximum number of people can be eligible for loans,

• Find ways to help customers tide over difficult times,

Subsidiary:

• DHFL Vysya Housing Finance (DVHFL) – A housing finance company registered with NHB and has operations in the states of Karnataka, Andhra Pradesh, Tamil Nadu and Maharashtra.

• DHFL Property Services is a 100% subsidiary of the housing finance company.

Achievements/ Recognition:

• 2004 - Corporate Social responsibility Award and Best Customer Service HFI's Property (5th Housing and Real Estate Exhibition) Project Crayon.

• 2007 - Award of Appreciation (Maharashtra Chamber Of Housing Industry), SRS Real Estate & Infrastructure Award for National Excellence, Excellence in Design among HFI's at Property Expo April'07 and October ’07 by Maharashtra Chamber of Housing Industry.

• 2008 - Silver CIO Award'08 by - CIOL Dataquest Enterprise Connect Awards.

Company Products

• Home Loans • Home Extension Loan • Home Improvement Loan • Home Loans for NRI's • Plot Loans • Mortgage Loan • Non Residential Property • Home Loan Linked - Insurance Plan • Reverse Mortgage • Fixed Deposit.

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Financial Results

12 months ended Profit & Loss A/C (Standalone)

Value(Rs. in million) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 6,890.82 9905.53 12679.08 14454.15

Other Income 45.11 19.93 21.92 24.12

Total Income 6,935.93 9925.46 12701.00 14478.26

Expenditure -741.54 -1176.88 -1141.12 -1286.42

Operating Profit 6,194.39 8748.58 11559.88 13191.85

Interest -4,929.07 -6698.39 -8138.54 -9115.17

Gross Profit 1,265.32 2050.19 3421.34 4076.68

Depreciation -24.16 -28.27 -33.92 -37.99

Profit before Tax 1,241.16 2021.92 3387.42 4038.68

Tax -323.50 -515.00 -745.23 -888.51

Profit after Tax 863.19 1506.92 2642.18 3150.17

Equity Capital 605.23 820.27 1041.28 1041.28

Reserves 3,940.17 4,803.36 7445.54 10595.72

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 60.52 82.03 104.13 104.13

EPS (Rs) 14.26 18.37 25.37 30.25

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Quarterly ended Profit & Loss A/C (Standalone)

Value(Rs. in million) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E

Description 3m 3m 3m 3m

Net Sales 2712.52 2983.61 3302.48 3632.73

Other Income 6.27 5.44 6.05 6.66

Total Income 2718.79 2989.05 3308.53 3639.38

Expenditure -372.27 -339.25 -45.81 -363.27

Operating Profit 2346.52 2649.80 3262.72 3276.11

Interest -1776.46 -1976.09 -2122.78 -2228.92

Gross Profit 570.06 673.71 1139.94 1047.19

Depreciation -5.02 -7.40 -11.63 -12.21

Profit before Tax 565.04 666.31 1128.31 1034.98

Tax -147.50 -153.90 -193.60 -207.00

Profit after Tax 417.54 512.41 934.71 827.98

Equity Capital 820.27 1,040.05 1,041.28 1,041.28

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 82.03 104.01 104.13 104.13

EPS (Rs) 5.09 4.93 8.98 7.95

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Key Ratios

Particulars 2009(A) 2010(A) 2011(E) 2012(E)

EBITDA Margin (%) 89.89% 88.32% 91.17% 91.27%

PAT Margin (%) 12.53% 15.21% 20.84% 21.79%

P/E (x) 22.16 17.20 12.45 10.45

ROE (%) 18.99% 26.80% 31.13% 27.07%

ROCE (%) 9.75% 9.19% 11.28% 11.95%

EV/EBITDA (x) 3.09 2.96 2.85 2.49

Debt Equity Ratio (x) 12.93 15.87 11.04 8.46

Book value (Rs) 75.10 68.56 81.50 111.76

P/BV (x) 4.21 4.61 3.88 2.83

A-Actual E-Expected

Charts

1. Net Sales & PAT

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2. P/E Ratio

3. P/BV

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4. EV/EBITDA

5. ROE & ROCE

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Valuation

• At the market price of Rs.316.00, the stock trades at 12.45x and 10.45x for the earnings of FY11E and FY12E respectively.

• Price to Book Value of the stock is expected to be at 3.88x and 2.83x respectively for FY11E and FY12E.

• Earning per share (EPS) of the company for the earnings of FY11E and FY12E is seen at Rs.25.37 and Rs.30.25 respectively for equity share of Rs.10.00 each.

• Net Sales of the company is expected to grow at a CAGR of 28% over FY09 to FY12E.

• DHFL received its board approval to issue equity shares to Qualified Institutional Buyers (QIBs) through Qualified Institutional Placement (QIP) up to an amount of Rs 375 crore.

• The board has given its approval to company to issue equity shares to Caledonia Investments Plc, UK (FII) up to an amount of Rs 25 crore, on preferential allotment basis and equity shares to the promoters/promoter group of the company up to an amount of Rs 100 crore, on preferential allotment basis.

• DHFL is considering of setting up a new subsidiary along with International Finance Corporation (IFC) to offer home loans to customers belonging to low-income group.

• DHFL Venture Capital has entered into a joint venture (JV) with the Redwood Group, a real estate fund having investments in Europe and Asia, to raise funds for investing in logistics and warehousing.

• DHFL offers a strong combination of growth and value, with superior asset quality. We recommend ‘BUY’ in this particular scrip with a target price of Rs.363.00 for Medium to Long term investment.

Industry Overview

The Indian economy is estimated to have grown by 6.7 per cent in 2008-09. According

to the latest Central Statistical Organisation (CSO) data, financial services, banking,

insurance and real estate sectors rose by 7.8 per cent in the third quarter of 2009-10.

The government has taken a number of steps in recent months to revive the economy,

including slashing interest rates, lowering factory levies and more than doubling the

limit on foreign investment in corporate bonds. The financial services space is a

rapidly growing one in India.

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As per the Securities and Exchange Board of India (SEBI), number of registered FIIs as on March 29, 2010 was 1710 and the cumulative investments in equity since November 1992 to March 29, 2010, was US$ 76.74 billion, while the cumulative investments in debt during the same period were US$ 11.85 billion.

The average assets under management of the mutual fund industry stood at US$

174.06 billion for the month of February 2010, an increase of nearly 36 per cent from

US$ 111.55 billion in February 2009, according to the data released by Association of

Mutual Funds in India (AMFI).

Funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33

times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009.

Furthermore, with economic outlook on Indian as well global markets being positive,

PE funds are closing deals more speedily than last year. The merger and acquisition

(M&A) activity has shown similar momentum, with domestic deals ruling the charts.

PE funds closed 29 deals in January 2010 compared to only 16 during the same

period last year. The value of such deals saw a significant jump of 303 per cent, from

US$ 309 million in January 2009 to US$ 1.24 billion this year.

Also, a study by Project Finance International (PFI), a source of global project finance

intelligence and a Thomson Reuters publication has ranked India on top in the global

project finance (PF) market in 2009, ahead of Australia, Spain and the US.

The study said the main market for PF in 2009 was the domestic Indian market,

which raised US$ 30 billion, accounting for 21.5 per cent of the global PF market. This

was up from US$ 19 billion in 2008.

The country's foreign exchange reserves were US$ 278.19 billion as on March 19,

2010, according to the figures released in the Reserve Bank of India's Weekly

Statistical Supplement.

The World Bank and India have concluded negotiations for loans worth US$ 3.2 billion

for recapitalizing state-run banks and funding for the India Infrastructure Finance

Company Ltd.

Qualified Institutional Placements (QIPs)

QIP is a capital raising tool, whereby a listed company can issue equity shares, fully

and partly convertible debentures, or securities other than warrants, which are

convertible into equity shares, to a qualified institutional buyer (QIB).

14

In 2009, Indian companies had raised close to US$ 7.18 billion by way of 45 QIP

issuances.

Stock markets

India's market capitalization (m-cap) touched US$ 1.04 trillion in June 2009 making it

the ninth largest in the world.

According to data from Bloomberg, India's market cap as a percentage of world market

cap was 2.8 per cent as on December 31, 2009.

In 2009, there were 21 IPOs that raised US$ 4.25 billion as compared to 36 IPOs in

2008 that raised US$ 3.68 billion.

Moreover, on the back of an increase in the participation of agriculture and other

commodities, the 23 commodity exchanges posted 50 per cent year-on-year growth in

turnover in the April-February period of the current fiscal, to touch US$ 1.53 trillion,

according to the commodity markets regulator, Forward Markets Commission (FMC).

According to data collated by international stock market research firm Bespoke

Investment Group, India has the best PEG multiple (price earnings-to-growth)

amongst several emerging and developed markets. At over 26 times trailing P/E

multiple and an estimated 2010 GDP growth rate of 8 per cent, India (denoted using

Sensex) commands a rather comfortable PEG multiple of 3.27 times.

Insurance

India is the fifth largest life insurance market in the emerging insurance economies

globally and the segment is growing at a healthy 32-34 per cent annually.

According to a report by research firm RNCOS—'Booming Insurance Market in India

(2008-2011)'—the total life insurance premium in India is projected to grow to US$

259.72 billion by 2010-11. Life Insurance Corporation (LIC) is bullish on growth and is

targetting business in excess of US$ 59.14 billion by 2011-12.

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The government is planning to ease restrictions on foreign investments in insurance,

banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from

the present 26 per cent.

The 'Mallassurance' delivery channel is first of its kind in India's insurance sector,

selling life and general insurance policies through all Future Group retail outlets

across the country. For Future Generali Insurance, a sizeable chunk of their

customers now comes through the Mallassurance route.

Online sales take place through two major channels through direct sales by the

insurers and through online insurance portals which offer a range of products from

various insurers. The most active insurers online are ICICI Lombard, Bajaj Allianz etc.

Banking services

During 2008-09, State Bank of India (SBI) and associate banks advanced US$ 16.8 billion for infrastructure projects such as power plants and petroleum refineries. The big-sized credits have made SBI and group one of the largest project financiers in the country. Finance Minister, Mr Pranab Mukherjee urged a doubling of infrastructure spending to US$ 1 trillion in the 12th Plan and said financial entities or banks will be authorised to issue infrastructure bonds for raising money for specific lending for infrastructure activity.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

16

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