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Suresh Krishnamurthy

FRESH investments can be considered in the stock of Dewan Housing, which trades at a price-to-earnings multiple of less than four times its per share earnings for the year-ended March 2004. The dividend yield, excluding special dividend, works out to about 5.6 per cent. The stock also trades at a discount to its book value even though its return on net worth has been consistently above 15 per cent.

This stock can be considered as an alternative by investors seeking debt investments with a significantly higher risk profile but offering attractive returns. Even such debt investments behave like stocks and, therefore, the additional risk element in an investment in a stock such as Dewan Housing can be considered only slightly higher.

Stocks such as GIC Housing and Gruh Finance are other such alternatives. Investors who are conservative and are yet seeking returns higher than the debt market can consider Gruh Finance. Those with a penchant for higher risk, however, can consider Dewan Housing. The business of this company is larger than that of GIC Housing and Gruh Finance.

Dewan Housing is also seeking to grow faster. It has been in the business of housing finance for more than a decade and acquired the housing finance business of ING Vysya Bank in 2003. It is also expanding its branch network aggressively in 2004-05. Dewan Housing has also reported consistent profit growth since March 1997.

In the period since then, net profits grew at a compounded rate of about 16 per cent. In the quarter-ended June 2004, its disbursements rose 49 per cent. The quality of its assets has also been good. The company has also maintained a consistent dividend paying record since March 1997.

Risks to profit growth do exist. In the years ahead, banks are likely to offer stiff competition to smaller players such as Dewan Housing.

If such players, however, maintain a credible credit rating and identify niche segments, then their ability to deal with competition from banks will rise manifold. This is because the operating costs for these firms are likely to be significantly lower than that of banks.

In this regard, that Dewan Housing has been able to avail term loan assistance from Asian Development Bank and International Finance Corporation, augurs well.

Dewan Housing has also announced a rights offer. The company seeks to tap the capital market, given its plans of increasing disbursements by about 100 per cent in 2004-05 and the size of the balance-sheet to about Rs 5,000 crore by 2007.

Even if growth in business is more modest, returns from an investment in the stock will be attractive.

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