Dewan Housing Finance Limited

(ricky76) #616

Sensationalist and mostly nonsensical allegations from Cobrapost allege that 25% of DHFL’s 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.


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.

(Marathondreams) #617

Wadhawans were never famous for Corporate governance. See some news items related to company owned by Rakesh Wadhawan, brother of Rajesh Wadhawan (father of Kapil Wadhawan)

(varunm2112) #618

Looking ahead from here.

DHFL is looking to disvest more project finance loans and bringing it under 10% of overall book which is currently 17%.Concentrating more on retail loans will squash all concerns on bad loans.

DHFL also plans to bring in a strategic partner by diluting promoter stake , possibly a bank or someone who can help during liquidity crisis.

No ALM mismatch for this calendar year. If everything goes right company plans to disburse 1500cr per month from March.

Independent auditor appointed by company & also one recommended by the association of banks to probe into the cobrapost allegation & give a report in 3 weeks time.

My view is that, in 3 weeks time we will hear rebuttal from management regarding cobrapost allegation & if one is satisfied with the rebuttal & gain trust on management it would be good valuation to add considering management focus on retail lending & strategic partner.

Disc- Invested, views may be biased

Views welcomed

(rkatikam) #619

Did we hear any other HFC selling down assets between Sep-Jan as much as DHFL? If we go back, between Sep-Jan DHFL has decided to sell down stakes in AMC, Loan portfolios to Oak tree etc. This is even before the cobra post allegations. In fact the deal with Oak tree was announced on 28th morning and cobra post allegations happened around 3PM that day. So why is that only DHFL found fund raising, rolling over the credit difficult than other HFCs? It all points to only one thing DHFL was never clean and few people might have had the knowledge about it. Now is it 31k Cr or 0.31K cr doesn’t matter.
In this case fundamentals are also affected as can be seen in Sep-Dec disbursements being just 500Cr which is 96% lesser than the previous qtr.
Someone must have been privy to some information before Sep 21 also. What made them to act on Sep 21, is something that is not known to public.
All DHFL did was to survive by selling all the subsidiaries or associates, (as I suspected even Avanse is on the block now), selling down high quality assets. Even after this they were not able to get back on track and hence now the strategic sale. I feel its NPAs will shoot up by March end and the vicious cycle has started.

(Harsh04) #620

If one needs to justify the price by saying , “Mr. Market is right” or “They know something which we dont and hence…”, then what is the need to put efforts in valuation and reading AR and going through the entire exercise of analysing the company ?

Not saying that Wadhwan’s are clean or dirty, but i believe that every promoter is a shade of grey rather than complete black or complete white, and one must choose the shade that they are comfortable with.

Action’s of DHFL has been swift in the latest cobra post expose and in sept 2018
I actually expected cobra post to come up with a counter on their blog post DHFL’s concall if they really were serious with their expose, which they havent still.
Ofcourse they cant just write anything that they wish and then just not follow-up with the rebuttals, which in this case has been quite firm denials by DHFL.

  1. None of the banks have said anything negetive about their exposure to DHFL.
  2. In Manpasand, Deloitte resigned and the stock tanked. Here, they havent resigned yet nor have said anything negetive, still the stock tanks.

Given the tight liquidity conditions, i feel it was right for them to trim down their disbursals. It indicates to me their flexibility and conviction in their buisness. It is sort of buying time to fire-fight the liquidty squeeze.
I see it this way, what do i do personally if i have a liquidity squeeze and dont have money ? so, why would i want dhfl to act differently ?

Personally, i would give them more time to fight their case before writing them off from my portfolio

Discl : Invested and added more recently.


The most important thing is that the promoter group hasn’t bought a single share to support DHFL.
They presumably have better investment options available to them.
Now would be a perfect time to bring up your stake from 39% to 51%.

Talk is cheap and actions speak louder than words.
If cobrapost has made mala fide allegations made against DHFL then why don’t promoters buy shares in their own company?

Remember no one knows more about company than those who run it. If they don’t find it investible why should you?

Obviously they have had a different exit strategy which doesn’t involve pledges or selling their shares. Now what is it exactly? Maybe look at allegations again

There are also other concerns which haven’t been talked about by cobrapost as they are much harder to prove.
I have hinted at this in my post in October

(rkatikam) #622

If one needs to justify the price by saying , “Mr. Market is right” or “They know something which we dont and hence…”, then what is the need to put efforts in valuation and reading AR and going through the entire exercise of analysing the company ?

Sir, this might be true under normal circumstances. Can you come up with a valuation today esp when every week if not everyday the subsidiaries or loans are being sold down? Do you have yesterday’s End of the day (EOD) balance sheet or do you think you will have today EOD balance sheet?

Given the tight liquidity conditions, i feel it was right for them to trim down their disbursals. It indicates to me their flexibility and conviction in their buisness. It is sort of buying time to fire-fight the liquidty squeeze.
I see it this way, what do i do personally if i have a liquidity squeeze and dont have money ? so, why would i want dhfl to act differently ?

why is that only DHFL is so badly affected even before cobra post expose?

(Divyanshu Bagga) #623

Market is mostly right, but it’s difficult to decipher market signals from noise. A 50% fall is a clear signal that something is wrong with the company. It is important to understand that the question is not about the valuation, but about promoter’s integrity. Do you want to bet against the market on promoter’s honesty? Do you have an edge in such a bet?
Or maybe you already accept that promoter is dishonest, but now want to bet on size of the damage. But again, does retail investor have any edge in estimating the extent of scam better than market? Do you really expect reading annual reports or publically available information will be of much help when the integrity of that data itself is in question?

(rkatikam) #624

Before btvi deleted, some other website picked it up

(Virendra) #625

Denials backed by any concrete evidence so far by DHFL. The management’s confidence - when going into specific details - on the call was far from encouraging.

Why would the banks deny as long as there are no defaults? Also, given the history of banks ‘kicking the can down the road’ I wouldn’t expect bank’s chatter as a leading indicator of the mess. Any bank noises will be ‘ex-post’, if at all.

My fears: DHFL is selling high quality assets - a definite sign of liquidity pressure. Once, they have dried this avenue, what next? Borrowing costs will shoot up if they have to raise cash. Big hit to their improving NIMS - will hurt earnings growth. The alternative? You have a tapering loan book, the core asset for an NBFC. This way also, earnings drops as business shrinks.

Secondly, a slowing or shrinking loan book will eventually lead to pressures on your NPA metrics. That, in context of the supposedly lower quality assets (as i fear) could mean even worse NPA, eroding earnings n book value.

I think any recovery from here will be a long drawn out affair. A clean chit from a reputed external auditor on each of the Cobrapost allegations would be a good start. Until then, I’d look elsewhere.

Disclosure: Closed a big position, at a loss. Views might be biased. Opinions welcome.

(sjsandesh) #626

DHFL CEO Harshil Mehta resigns.

(RICHAJ) #627

But he is still Executive President of Retail. Is this just a placeholder position to gradually ease him out? Or does he just not want to responsibility/conflict of being a CEO given the current state of affairs when the MD is so heavily involved in operations?

(Puneet Nandwani) #628

We will only know that when the movie ends.

(varunm2112) #629

Looks like he’s going to be around

(devarshi84) #630

Big names like Bain, Baring and Hero Motocorp. ALSO, MR. Wadhwan will step down. Only 10pct equity to be given away.

(rkatikam) #631

Finally looks like the chor promoters are getting out. Hope the company goes into the hands of a better management

(rkatikam) #632

DHFL market cap at the peak would have been around (690/130*4091= ~21700 Cr) before Sep 21. Now if the cobra post expose is right, they have siphoned off 31000Cr. All the business that they have sold off recently would have got them about say 3000 Cr and if now they sell the remaining ~40% stake in DHFL, they will make another 1600 Cr. 31k+3k+1.6k=~35kCr is the total money made whereas 40% of 22k Cr would have been only ~8k Cr. I think this had to be one of the best ever plans. Leaving the company with all the sold down portfolios and bad quality assets in the hands of a new investor!

(dumboinvestor) #633

Really something… Promoters are incentivised to be chors. Pity the investors who entered at 600 levels. Wadhawan is too smart. Amazing that not even jhunjhunwala saw this coming. I think all the investors should forgive themselves get back up and buy better opportunities. This is not the time to be fearful but the time to be greedy.
Best wishes to all the losers in DHFL.

(yourraj) #634

SOME UPDATES : This might be the old news some of you may be aware of these

(Snowball) #635

If they siphoned money as alleged by cobrapost (which I believe they did), and if the law enforcement agencies do their job, then I doubt Wadhwan & the gang will be able to enjoy the heist this easily. His future is more likely to be a jail prisoner than a bahamas beach surfer.

But that’s how it is supposed to be working in ideal scenario - Law catches up with the wrong doer and investors in bad business or bad corporate governance suffer.

But I am afraid (and I guess you also), that there is still a possibility that only the minority shareholder will suffer and the honchos will get away due to their political connections.

I have not done my own thorough investigation on cobrapost allegations but prima facie there are lot of pertinent questions that it raised. e.g. what was the need for creating these shell companies and for what purpose the loans were given to these shell companies by DHFL.

Disc: I was invested in DHFL. Added more when stock crashed on DSP selling DHFL paper on 21 September came, as I felt it is a liquidity issue and not corporate governance. Sold all my holding next day after Cobrapost expose as I concluded it as corporate governance issue. Booked loss and moved on.