i guess concall transcript should be sent to bse/nse
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what-does-the-market-know.pdf (867.8 KB)
wish to share this Memo from Howard marks âŚâŚ.I am fully clueless about what will happen to DHFL as a company and its stock price.
but enjoying reading this during this time so sharing it.
DHFL Con-call highlights:*
- the company has highlighted that the allegations made by cobrapost, w.r.t to DHFLâs lending towards shell companies, were completely false. As the names of DHFLâs boorowers doesnât appear in the list of Shell companies notified by MCA.
-The company has neither lent to, nor has any holding in the equity of Galaxy Realtors, Greentown developers, or Atmosphere developers.
- The company is looking to enter into a partnership with a strategic investor soon.
-The company has appointed a independent CA firm to look into the details of the allegations and is awaiting their report.
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The rating downgrade by CARE, was not due to any non repayment. The rationale for downgrade was purely based on the market volatility in the stock price and widening of bond spreads.
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the promoters (group) hold ~40% of DHFL shares, which have not been pledged at all.
unable to find and concall transcripts anywhere and hence this question :
- did the promoters clarify anything regarding stopping of disbursal of loans and when they will resume the normal course of business .
- was there any clarification regarding the news of MCA raiding the addresses and their subsequent findings of not finding any office at those addresses ?
I think there is no question about that. It is not easy to recover from such dents of perception easily. However, the context of the discussion is not the equity price but the impact of this on
- Action/Inaction of the Government
- Bond Market Yields in general
There is more reason to worry now I guess. Why would a company want to bring in a strategic investor. All their avenues to raise capital thru banks and DCM are sort of closing down ?
In the above article, I didnât understand what exactly he was trying to say
Speaking to analysts for the second time within a week, Wadhawan said the company has done a detailed review of the allegations and denied any wrong doing.
Starting with the underlying amount, he claimed it is over Rs 23,000 crore as against the over Rs 31,000 crore claimed by the portal and added loans in question are to projects registered under the Slum Rehabilitation Authority in tony locations of Mumbai, where the company has adequate securities
Is he saying that they are guilty of 23000Cr instead of 31000Cr?
I think the example of Morgan Stanely that is quoted in the example is supportive of the premise by Howard Marks. What if one takes the example of Barings bank that went down? Or, the name that triggered the 2008 crisis - Lehmann? As you said, it is anyoneâs guess what happens to DHFL, but erring on side of caution is what investors do when they sell in panic. Also, at least in the Indian context, there could be information asymmetry which enables certain individuals to have information edge which may be less prevalent in developed markets. Some folks will remember that Satyam always traded at a discount to Infy and TCS and in an earlier era, a company called Pentafour Software was at a discount too compared to Infy. Some readers might remember that Pentafour was touted to be the next big Software company, and it vanished without a trace. Even here the market never assigned the same halo to Pentafour or Satyam as it did to Infy. Perhaps a cautious approach would be to believe that the market is mostly correct most of the times and its only occasionally that it gets wrong, or rather overreacts. So while the venerable Marks may be right about the average market IQ being no more astute than an individual, at least in Indian context, this possibility is very real due to the information assymmetry.
One recent example of betting against the market was by Prof. Damodaran when he bought into BMW post the scandal of cheat software. But then the prof was able to justify the decision based on numbers and could take a calculated bet. In case of DHFL such a bet might still be possible by the most sophisticated readers if they have the data at hand, and in case of financial companies, the labyrinth is much more vexatious than a manufacturing company.
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Link to todayâs concall
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Scam or not, this guy does make it sound sincere.
No defaults to banks or creditors till date and naming the external auditors gives some consolation.
Rest we need to wait and watch.
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Concall Takeaway-
- Promoter looked sincere and also confirmed 20cr donation given to BJP, but failed to answer the follow up question as to why was it given out of a loss making entity.
- The divestment proceeds are only 500 cr for DHFL whereas the holding co WCG would get a much bigger chunk that would directly go to promoters hands.
- Denied all allegations but provided no physical evidence or Rebuttal in writing.
- The Promoter want to dilute stake via strategic sale, instead of buying more stake in DHFL with holding companys divestment proceeds.
No off course he doesnât mean that, all he meant that on the call while bringing it up was that cobrapost info is not correct and it lacks basic checks such as this as it actually adds up to 23000 cr and not 31000 cr , so if that is indicative of the quality of investigation thatâs been carried out and published by corbrapost.
he mentioned it in that context.
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Unbelievable!!!
Not a word of impact of cobra post and ensuing share meltdown and freeze in lending that is sure to follow. Itâs like report written 2 weeks back and someone didnât want to redo the effort after expose and therefore just decided to release it.
Instead of these ludicrous reports as yardstick, I am asking myself a simple question - whether I would lend to DHFL today and if my answer is âhell noâ, then the company is on its way to NCLT. Liquidity is like air to finance companies and unless Wadhwans put their personal assets on table, I donât see how they will survive.
He is saying Cobrapost canât do simple math, forget doing investigative journalism.
I heard it, he did not refer Cobrapost anywhere in his 9 odd min talk. He is referring to someone called Vikas Shekar.
As for Cobrapostâs number it adds up to Rs 30,857.5 + 10% of SAST violation. Here is how (as per them):
(all figures in Rs crores)
Secured loans to âshellâ firms: 7,390
Related party loans to 45 companies: 14,168
Insider Trading: 1,000
Offshore Assets: 5,200
TDS default: 600
Loans to companies (irregular): 2,480
Donations (in violation of Companies Act): 19.5
SAST violation to the extent of 10% of shares is not computed, but that should add up to make it Rs 31,000 crores.
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#diffsoft
The managements when in trouble will deflect the core issue at hand and find fault with the charges made.The DHFL management also said the so called âshellâ firms were not declared as âshellâ by the dept of corporate affairs.Did they say anything about TDS default or insider trading.
How much so ever they may try to find fault with the charges made the trust is eroded and they have practically stopped their disbursements and have been fire fighting everyday.
The impact of this will be more severe in the ensuing quarters and the family silver is being sold everyday to survive.
To revive and regain lost glory is many years away.History is replete with corporates who have stoutly denied wrong doings and have only seen erosion in wealth-The recent ones are PCJewellers, Vakrangee,
Manpasand,InfibeamâŚ
There will be many times it will bounce but having fallen almost 80% from the peak, such bounces will only lead to more lows.
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Yesterdayâs confcall Audio posted on DHFL website
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The problem probably lies in ascertaining that a certain promoter is crooked (I am not saying DHFL promoters are one, just expounding on the subject since they are questioned). Unlike say business quality which can be measured with various financial metrics, there is no similar way of knowing if someone is a crook. It is also downright dumb to assume that a crook will admit to being one. So there is no point in asking if he is one.
So we are left to evaluate by asking questions like âpeople are alleging so and soâ, âthis seems improper etc etc and hence what do you sayâ. Our evaluation is subjective. We know that because we do not have any predetermined objective criteria to say that âif he gives this answer in this manner, then he is crooked, otherwise he is notâ. Our evaluation is also posthoc, meaning, we form the criteria after making up our mind about the crookedness of the promoter, so that the criteria fits the answer whereas it should be the other way round. For instance we will say that check the âconfidenceâ, âcoherenceâ, âhonestyâ, âhumilityâ, etc etc and feel comforted about our evaluation.
Now a really seasoned âcrookâ knows that very very well and we should assume that. So naturally he will play his game well, will be supremely confident, sound humble, will play victim etc. I thus think it very unlikely that amateurs like me can spot a crook. Books like Spy the Lie help to some degree, but only a professional can, in my view, say with a high degree of certainty, and even they falter.
I think it would very naive to think based on some QnA and talks that âI am very confidentâ things are OK or things are not OK. Daniel Kahneman wrote on the hazards on confidence that may be worth sharing here.
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Sensationalist and mostly nonsensical allegations from Cobrapost allege that 25% of DHFLâs book is a sham however DHFL has not defaulted on a single coupon nor has there been any spike in bad loans yet its shares are in a free fall.
Why?
One is simply a text book case of reflexivity , since prices are falling by the day , investors think that something bad must have happened to the company , this begets more selling and so on. Important to recognise that for this to happen the fundamentals need not have changed at all. The simple fact that prices are falling is enough.
During the 2008 financial crisis, something similar happened in the US. Vicious rumors were spread against Morgan Stanley and Merrill Lynch after Lehman went down leading to cries that rumor mongering and even short selling should be banned.
However the SEC refused saying that short selling by itself cannot bring down a company if there is nothing fundamentally wrong, all you need is a couple of smart people on the other side to show that they are wrong. Howard Marks of Oak Capital did precisely that with Morgan Stanley.
India however is a different story, generally low quality of analysts and funds who can make 15% a year just by buying Dabur and HUL are unlikely to take risks with companies that are deemed to be facing existential problems. There is simply no one on the other side of the trade, after all why buy DHFL and risk your career when you can buy HDFC for guaranteed returns with no headache?
So you end up with a market with panic sellers and no buyers.
On another note, I think It is also highly likely that the Cobrapost investigation was leaked to certain groups in September itself, there is simply no way a stock can drop 50% like DHFL did just because a mutual fund sold its paper at high yields after IL&FS defaulted.
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