Quick thoughts on current situation at DHFL : disc - invested
- It has worked to bring down CP to 0. CP’s were low to begin with (10% vs 20-40% for peers). While more celebrated peers were on leading business channels to register their daily cribs, this company (probably its was hit the worst in terms of sentiment) had its head down and worked on the issue.
- Bringing down CP in this market means it needed to find alternate finance - therefore its selling its non core (non lending) or smaller lending businesses
- The insurance business sale was a huge equity injection for the lending business - and helped it grow. Agreed that the structure is complex, but whether there was false disclosure/illegality it is not clear.
- Q3 will be very painful. General lending had slowed down, and the company has chosen this time to actually reverse its strategy to increase developer funding - which it pursued for 4 years. The only silver lining is that developer exposure is also the least amongst peers.
- Don’t see any reason for a spike in NPL’s on account of the liabilities’ side issues.
- As liquidity situation improves, growth will come back (sans developer funding). Overall, expect tepid growth for a few quarters atleast.
- Overall the company seems to be doing the right things for the long term and and valuations might creep up gradually as the dust settles.