perception of the promoter’s integrity is one of the biggest contributor to
share price movement.
disclosure: no holdings
Financial analysis is difficult & FA of finance companies is even more difficult. Could not make much sense out of the discussions in the thread. May be will take some time . However I could paint a picture as below.
Business Quality wise( Growth, Return Ratios, Margins, Fin Health)-Gruh, Repco are at top and LIC & Dewan are similar below the toppers. However valuation wise Gruh, Repco are costly. Dewan is dirt cheap. LIC is somewhere in between. But my key point is LIC is a big player already with excellent credit ratings and high brand recall.If I could buy Gruh/Repco it would have been best.
In a nut shell:
Gruh is high quality, high priced small player. Dewan is avg quality, cheap priced , small player. LIC is avg quality, fair priced , large player. I would prefer LIC over both Gruh & Dewan for long run.
Disc: not invested in any HFC as yet. looking for entry
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IG Value link seems insightful. Nice work
Found an online calulator for fair PE. Is it ok to use
You can take a look at Can Fin Home Finance also.
Disc - Invested.
Any view on IBHFL? The company continues to generate huge profits and pays out hefty dividend. Continue to raise money through!
Many of the company ratios are superior to peers. Are there any management issues?
Yes, this is a starter. While I do not agree with vast parts of the analysis claiming that IBHFL is cooking its books, I would avoid putting my money behind such an arrogant management.
where did u get price for warrant conversion. anyways they are diluting equity without giving chance to other investors speaks about why street gives no value to DHFL management and its integrity
Sorry, my bad, I was wrong about the warrant issue price, It is not 220/share as mentioned earlier it is in fact 235/share. A cool 35% premium to cmp as of today.
@ Amit - management / promoter issuing warrants to themselves is extremely routine. Pick any company at random & they have done it, from Infosys to currently Granules. This has got absolutely nothing to do with the street’s negative perception of this company. The opposite can be argued. The promoter is putting more skin in the game to garner a more favorable view.
I think the more important question is, where did Kapil get Rs 500 crores in liquid cash from to buy all these warrants? His salary as declared in the AR does not seem commensurate with such large liquid holdings. Does anyone have any insights? The only thing i can think of is that he sold his HDIL stake a few years ago, not sure how much he got out of it though.
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Thanks for clarifying but don’t understand why dilute when housing demand is not there so loans may not increase with same pace. If you see latest quarter there is dip in loans for flats etc and increase in SME loans.
Holding company had offloaded some 4.2 % in Dec 14 to March 15. I guess they are buying it back with same money. Nothing substantial. I have been holding a tracking position for over two years now but could not increase. Need to do deep investigation.
Housing demand not there? Where are you getting this from? All HFCs have posted 22 - 25 % growth top & bottom line, disbursement growth was pretty good as well. If what you meant was CAR (Cap adequacy ratio) is comfortable and does not require additional equity infusion to support growth atleast for a year or two then I would agree. I read this more as management signalling than anything else.
I think a more important question is has Kapil paid up 125 crores (25% of 500)? how many tranches of warrants is this going to be split into etc. Because it clearly makes no sense for him to pay up the pending 75% given where current market prices are. Not sure if he has that option though. Could anybody educate us on SEBI rules regarding warrants? If i as a promoter (not a third party) bought a tranche of warrants by paying up the 25% and waiting to exercise the warrant, am i obligated to exercise the warrant? Could i renege on this even after publicly stating that I intend to buy 500 cr of warrants? Also, why doesn’t he just buy it from the open market? He d save him himself a lot of money 
and also support the price a bit!
Hi
I don’t track the company, but regarding your doubt on warrants - I can add a bit.
SEBI rules says, in case of issue of pref. warrants atleast 25% of amount has to be paid upfront and remaining 75% at the time of conversion (if conversion is opted) - last i checked, regulations allowed a time frame of 18 months for conversion (check - if it might be 12 months now)
The above is true for a promoter. Promoter has the option of not converting due to any reason whatsover.
I believe the part-purpose of issuing warrants was to infuse money into the company, which would not have been possible from an open market purchase albeit both the options will lead to increase in promoter’s shareholding.
Hope it helps.
p.s. - don’t read much into the commercial perspective of warrants/share price because at the end of the day, it ends up being a subjective opinion of the bearer (i.e. promoter in this case)
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Thanks Mayank! And if i remember right, he has a conversion window of 18 months.
On the open market purchase vs warrants route - I raised the point about buying in the open market mainly because the CAR seems comfortable, there was no real need to boost CAR (infuse more equity) to support growth, he actually baffled the analyst community by doing this. It’s beyond me why he chose this route. But I guess that’s a different conversation.
Thanks again. Appreciate it!
So based on Mayank’s clarification, Looks like Kapil Wadhwan would have already paid at least 125 crores(min 25% of 500) I look forward to seeing this reflect on the BS come next quarter.
I have recently added Dewan. Also digging into the business continuously. Excellent discussion here and it compares well with what I have discovered so far. I have come to conclusion that we need to look at this as a deep value opportunity with limited time frame. The valuation is compelling because of various reasons…general market fall, Lower profitability, unwarranted diversification, promoters reputation etc. Regardless of who says what we need to monitor the promoter dealings and related party transactions like a Hawk. The leopard does not change its stripes so easily. I am not yet sure if this is buy and forget kind of stock. May be not. I am treating it as a purely one off kind of opportunity which will play out in the next 3 years. However we retail investors try we will never get answers to questions like HDIL’s involvement, where did Kapil get Rs 125 Cr etc. And that explains why valuation is so compelling. I will sell when it becomes slightly less compelling. I think discount will persist even in the future. The market may be inefficient but it is not fool for so long.
Guys, does any one have an insights on the approx 800 cr (796.15 cr to be precise) Capital work in progress that is on their balance sheet for the past so many years? This number hasn’t moved! Is this the new office building? That’s the only thing i can think off, what else CWIP could a fin services company have? The notes to account don’t provide any details either! Any insights ?
This what I found from the placement document at DHFL site
Capital Work in Progress includes ₹ 7,961.5 millions (₹ 2,587.1 millions) paid as part consideration for acquiring office premises under construction.
You can refer to below link
http://dhfl.com/wp-content/uploads/2015/02/Project_Billion_PPD_Final_February%2024_2015.pdf?
Same amount was ₹ 2,587.1 millions at end of FY-13, ₹ 1822.6 Millions at end of FY-12,
The amount has not increased from FY-14, but at the same time company has not got possession of the office premises.
Curiously enough CWIP amoun is ZERO(0) for othe HFC like Repco, Gruh, Indiabulls Housing finance, LIC Housing finance and GIC housing finance
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According to latest investor presentation(December Qtr) Gross-1.02% Net NPA-0.65%.
Any reason why their dividend payout has been declining yoy?
I can only guess here…they need lot of funds to grow their business. They are ambitious. Now their leverage is already stretched. And ROE is not high enough to support growth based on internal accruals. That means more equity is needed to take more borrowings. The promoters have already committed to add more equity. That will allow them to take on more funds from NCDs and bank term loans. For every Rs 1 equity they take Rs 12 or so loans from the market and then lend the amount to home owners. In this situation they may decide to retain more of their profits to grow their business.
Again this is my conjecture based on my knowledge of this company. I may be wrong also.
CONFERENCE CALL - from Capital Markets
Targets loan growth of 17-19% for FY2017
Dewan Housing Finance Corporation conducted a conference call on 04 May 2016 to discuss the financial results of the company for quarter ended March 2016. Harshil Mehta, Chief Executive Officer of the company along with colleagues addressed the call:
Highlights:
- The loan book of the company increased 21% to Rs 61775 crore at end March 2016 from Rs 51040 crore at end March 2015. The AUM of the company moved up 22% to Rs 69524 crore at end March 2016.
- As per the company, the FY2016 was eventh for the industry and relaxation of capital adequacy ratio and govt focus towards afforable housing augurs well for housing finance companies.
- The company expects loan book growth of 17-19% and earnings growth of 15-20% for FY2017, which is expected to be driven by low and middle income segment.
- The disbursements increased 24% to Rs 7822 crore, while the loan sanctions moved up 36% to Rs 12775 crore in the quarter ended March 2016 over the corresponding quarter of last year.
- With the good demand for properties in the price range of Rs 15 to 40 lakh, the company has tied up with such developers across the country.
- Gross NPA ratio remained was stable at 0.93% at end March 2016. Meanwhile, Net NPA ratio continued to be nil at end March 2016. The NPA coverage ratio was robust at 101.7% at end March 2016. Segment wise, housing loans GNPA was at 0.74% and non-housing loan GNPA stood at 1.2%.
- The net interest margin improved to 2.96% in FY2016, compared with 2.9% in FY2015. The weighted average cost of the fund mix declined to 9.67% in FY2016 from 10.28% FY2015.
- NCD share in the borrowing mix increased to 33% at end March 2016 from 28% at end March 2015, helping the company to sustain NIMs at 2.96% for FY2016 up from 2.89% in FY2015. The company would focus on raising share of NCDs and FDs.
- The share of bank borrowing in borrowing mix of the company has declined to 53% from 58%, while the company expects to reduce the same to 40-45%
- The company also expects to maintain NIMs in the range of 2.8-3.0%.
- The share of project loans has increased to 9% at end March 2016 from 8% at end December 2015. The company proposes to improve the share of project loans to 16-17% in the short-to-medium term.
- SME loan disbursements stood at Rs 1600 crore in FY2016. Most of the SME book of the company qualifies for Priority Sector Lending (PSL) status.
- The company proposes to cosistently improve the cost-to-income ratio, while expects to reduce cost-to-income ratio by atleast 25 bps in FY2017.
- The branches count of the company has declined to consolidation of branches in certain locations.
- The compnay would maintain Capital Adequacy Ratio above 9%.
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An interesting article about Avanse Educational loans in which DHFL owns 37% stake.
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