Dewan Housing Finance Limited

(dprashant) #328

Yes i agree , as in their case the ALM is positive for next 12 months , more assets maturing compared to liabilities.

(EL) #329

Thanks for your analysis

We all are in the same boat as holders

Banks and nbfcs take huge loans/debt
Their efficiency is measured by net profit over debt

Dewan is not great there as well

But let’s say as their annual report says, their non performing assets are low

As it’s a commodity, in theory they can increase the rates on housing loans to above average market rates

What this will do is force some of the debt/mortgage to be redeemed

Very recently they actually wanted to get more debt that could mean either they need liquidity or their model works

Having said that indiabulls and hdfc also are/were in the process of increasing debt via debentures

(kris2727) #330

DHFL Management is trying hard and not shying away atleast like IL&S, PC Jewellers.


(EL) #331

That’s roughly 550 crore redeemed early in the times when interest rates are rising and there are doubts on their liquidity
Probably the debenture holders would have threatened do dump it in the market which would have caused untold havoc :grinning:

(kris2727) #332

The way financials are behaving past few weeks is eerily reminiscent of what happened circa mid july-august 2013 . The primary factors spooking the markets are somewhat similar to what happened during that period :

Rapidly depreciating rupee.
Murmurs surrounding fiscal deficit.
Strong likelihood of Interest rate hikes by RBI
Here’s the performance of some of the major financials during that period.

15-07-2013 28-08-2013 Fall Peak Fall from peak
YESBANK 500.35 225.85 -55 542.75 -58%
BAJFINANCE 1481.15 984.25 -34 1581.15 -38%
DHFL 159.05 115.1 -28 221.05 -48%
GRUH 234.3 199.25 -15 246.9 -19%
HDFC 848.5 652.75 -23 929.5 -30%
HDFCBANK 695.45 561.95 -19 725.15 -23%
ICICIBANK 1061.05 796.35 -25 1231.95 -35%
INDUSINDBK 506.35 344.55 -32 529.35 -35%
SRTRANSFIN 678.65 508.35 -25 835.4 -39%
LICHSGFIN 237.85 162.55 -32 297.25 -45%

so I think Market over reacted this time and this too shall pass . Buying quality financials would now should serve well in the future.
Note: copied above table from other board

(Virendra) #333

My first post to the forum :smiley: Thanks for the knowledge all of you share on here :slight_smile:

While the repayment does come across as a positive, it looks like the DHFL management is working hard to prove they are clean. This ‘focus’ on assuaging the concerns wrt the stock isn’t a good feeling. Just my opinion.

Discl: Am invested from a lower base. Have added in this meltdown, but starting to get uncomfortable by the number of concalls and recent heightened activity of the management. Forgive me if i come across as a novice, this is my first bear cycle :slight_smile:

(divyansh ) #334

Dhfl has stopped funding and so has India bulls . This is from a friend who is a branch manager in lic housing. Can someone else verify the same. My friend said they have stopped payments as small as 15 lakhs. Should be temporary

(RICHAJ) #335

DHFL is into affordable housing loans and so its maximum ticket size is only Rs.15L.

That is a huge claim to make, that these companies have stopped lending, and even if temporary is a huge red flag Even PSBs have not ‘stopped’ lending. To what extent can a branch manager talk about the rest of his employer, let alone a rival?

(divyansh ) #336

This is what I heard from a friend. I am not trying to spread any rumours , that’s why asked if anyone else could verify about the same. He works as a branch manager for a hfc and cause of his position and field is aware about daily happenings of the industry.

(EL) #337

I think there are 2 issues,

Firstly people are worried about liquidity.
DHFL has short term debts that are maturing for repayment within the next 6mths to 1yr. Investors are worried where they will get the finance to pay for these as all the debt is lend in turn by them to property holders. And even if they can raise money to pay the short term debts, they will have to borrow at the current market rate whereas mortgages were given at the older rates.
Ofc they can increase mortgage rates but this brings us to the second issue

Higher mortgage rates might not be affordable to all borrowers in which case npa ratio will increase.
The house prices I believe have not changed over the last few years so if they seize the assets, no one is sure if they can recover the debts and fast enough to satisfy the short term bond holders.
We dont know what their stress test is or what their lending criteria is. I mean when they lend, do they ensure there is enough salary buffer so if rates increases, the borrower can still afford to pay

If there were a bank, RBI acts as a lender of last resort. So companies like Gruh and HDFC wont have that much of an issue as they have support of a bank that will lend to them and the bank can then borrow from RBI atleast in theory besides they dont have a problem of mismatch between short term current assets and current liabilities.

If you were an NRI residing in say USA and you had 100k dollars to invest. USA offered you 5% and India offered you 5%. You would prefer USA because that country has demonstrated stability over a longer period of time, no demonetisation history, etc. Even if you were not an NRI and had no barriers to where you could invest, you’d still prefer USA. That’s why countries like Greece, Cyprus had to offer higher interest rates.

Now mf operate under similar conditions. Given same rate they would lend to a stronger company unless DHFL were to increase interest rates. If DHLF had access to only higher interest rates and were to in turn increase the interest rates on their mortgages which is a commodity that would make them noncompetitive.

All these uncertainties make DHFL a risky bet at the moment so where possible the shares are being dumped

(EL) #339

You shouldnt look at just one metric

Its very easy to generate a high return on equity

Lets say I am into printing business
I buy a printer and capitalise it. Every printer comes with free inks. Once the inks are over, I buy a new printer and capitalise it.
My ROE will be very high as I dont have any consumable costs. I can negotiate with the manufacturer to give me free paper as I always buy from them. So now I can have higher ROE

That’s what 8k miles have been doing

(RICHAJ) #341

I think we’re generally in agreement about the attractiveness about the current risk/reward situation, but I don’t agree with some of your extrapolations.

Has anything changed after the first conference call? I believe management said that they have access to Rs.20,000Cr worth of liquidity, which was enough for the rest of FY2019.

This applies to the entire Indian financial industry. There is no reason to believe that the interest coverage of low income borrowers is less than that of higher income borrowers. Both types of borrowers will try to max out their repayment capacity. (I could be wrong, but this would be 30-50% of their salary.)

This really depends on which housing marking within India we are talking about, but if I recall correctly cheaper housing (<50L) has been doing much better than more expensive. Either way, assuming that a wave of defaults is forthcoming and that borrowers will be under water is very extreme and unlikely. This presumes some kind of economy wide financial crisis.

You’re telling me that the bank promoters of these companies will provide money NOT at an arm’s length? Banks cannot freely borrow from the RBI. They need to provide Gsec collateral and pay interest. All of this interferes with the bank’s own operations and liquidity/treasury management. In the event of a ‘bail-out’ situation, I doubt HDFC Bank alone will be expected to come to their rescue.

(EL) #342

I dont know why you feel the need to quote each paragraph. If you would write a letter you wouldnt do it, will you. besides I am perfectly capable to read my post again to see where your line of thought in response to it is coming from
If we keep on quoting and requoting, in the end no one will follow other than the 2 people who are writing
Anyway as you touched many topics, I’d like to just reply to one above and have intentionally quoted it, my preference being usually not to.
Re: the above topic is this not the reason why all finance companies are being punished ?
Agree that DHFL lead the downfall but almost every finance company has taken a beating

Re; HDFC bank can inject funds into Gruh. It will be at arms length. They will have to pay interest rate. The question is not that. It was “if they have access to funds”

(Virendra) #343

Yes, that’s true. Confirmed it with a friend at DHFL. However, he says it is only a cautionary measure. No default so far. However, they are seeing a heightened FD withdrawal.

(dharmeyshashar) #344

They are paying out to the FD holders and no irregularity reported so far.

(Puneet Nandwani) #345

My view is, right now investors will forgive low growth or no growth. They will not forgive liability default. So even if I slow down my new loans sanctions for some time to preserve on cash, that is ok. I know liquidity is tightening, perceptions issues, few may lend, more may redeem. If we don’t grow that’s okay. Let’s preserve cash for liability payment. Let’s pay on time.That is what I would have done.

Not sure if below situation is true or is a rumour.

Now four things matter to me for next few weeks.

1 Any kind of liability default

2 Rating downgrade

3 RJ portfolio exit

  1. Fraud of any kind

Thank you for sharing.

(dprashant) #346

Very interesting views from BM.

(devarshi84) #347

As per news, they redeemed some percentage of debentures prematurely. This seems to be a well calculated move.

Also stopping loans to preserve cash? I would do the same. Growth at the expense of liquidity tightening is not good.

Let’s hope that this is just a phase and DHFL will recover lost ground rapidly.

Disc: invested and might add more based on risk to reward analysis which is positive as of now.

(kris2727) #348

I agree with Basant comments where he mentioned new and small players will not survive in HFC sector and only Established players will survive once this storm is over. DHFL is a 40 yrs old company and will surive this time as well. I agree that there had been some corporate governance issues in the past which is still haunting them and thats one of the reason, it got butchered brutally apart from DSP selling bonds . Ajay Piramal mentioned that MF’s and Bank’s have started lending back to NBFC’s which should ease some liquidity issues.

(dprashant) #349

But BasantJi also mentioned that stocks that have fallen 50 odd percent might be due to some reasons which market will get to know later on.
I know that’s in speculative zone and can be debated endlessly.
Still trying to figure out if there is anything that’s not known to majority.???

Disc…Holding 10% at CMP and clueless …the fall has shaken up confidence but unable to find any legitimate fundamental reason for such fall.