Dewan Housing Finance Limited (DHFL) has recently been in the news. Its share price has been falling. The IL&FS fiasco is especially to blame for this.
In this article
DHFL share price: ₹227 (9th January 2019)
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The Dewan Housing Finance stock fell up 44% in trade on 21st September 2018.
This also spurred selling in other stocks of housing finance companies as the investors were concerned over the rising cost of borrowing for the companies amid the continuing financial crisis of IL&FS.
Dewan Housing suffered a loss of ₹10,000 crore worth in market cap. The tightness in the money market and lack of clarity on the IL&FS crisis caused the sudden sell-off in NBFCs stocks.
Most of the housing finance and NBFC companies’ stock prices declined by 10-40% intraday. This was because of the news that DSP Mutual Fund was forced to sell commercial papers of Dewan Housing Finance in the secondary market at a higher yield. This higher yield for the commercial papers was due to tight liquidity.
Also, the cost of borrowings for the NBFCs is going to rise as they may face a challenge in raising money due to IL&FS crisis.
Reasons for fall in Dewan Housing stock price
- DSP Blackrock MF had to sell DHFL bonds at a net yield of 11% which as per the issue had a yield of 9.1%. Thus, the bonds were sold at 18% discount. The government securities were already in loss due to bond yield having risen. Therefore, DSP decided to sell the corporate bond of Dewan Housing.
- Further, illiquid Corporate debt market and DHFL saga resulted in AMCs having no option but to sell GSec. Hence, GSec will face a huge selling pressure so either Bond Yield will shoot up to 8.30-8.50% levels or the RBI has to do Open Market Operations (OMO)
- If the RBI opted to go for OMO the government spending capacity would reduce by and the equal amount which the government could not allow at the moment with elections around the corner.
- Rumors regarding the liquidity problem and transaction with IL&FS.
DHFL and IL&FS: relation
The shares of Dewan Housing Finance fell on concerns that it may default on the outstanding bond re-payments. Many in the equity markets held the belief that its exposure to troubled financier IL&FS could further stretch the finances at the mortgage lender. This also spotlighted the potential ability of housing financier to raise funds at lower rates. In lockstep with DHFL, Indiabulls Housing Finance fell 8.18%, LIC Housing 5.05%, and PNB Housing Finance 4.92%.
The IL&FS was a contagion issue and would surely affect the perception of the entire industry.
Though DHFL had the liquidity to take care of any redemptions as per the management. The management also stated that there was no default on any bonds or repayment by DHFL and that DHFL had no exposure with IL&FS. While yields have hardened 100 basis points to 8% over the last 1 year, the company’s cost of funds has gone up to 8.5% and net interest margins remained at 3.44%. Dewan Housing Finance shares closed at ₹351.55 on 21st September 2018 the Bombay Stock Exchange, down 42.43%. And right now, it stands at around ₹230.
DHFL stock crash
The last couple of years played a significant role in driving the Indian stock market to record highs. Mutual funds have especially profited from betting heavily on non-banking finance companies (NBFC).
On September 21, rumors of Dewan Housing defaulting on one of its debt payments sent the investors into a tizzy.
Most of the debtors of Dewan Housing pay monthly installments for their loans on time. Thus the company would not have to repay investors the amounts it owes to them. This states that there is nothing fundamentally wrong with Dewan Housing (DHFL).
Eyeing on the IL&FS crisis, it has spooked many of the investors which is more of a self-protective strategy resulting in the hammering of NBFCs and housing finance stocks.
The stock of DHFL recovered on 24th September while other NBFC and HFC stocks were trading down.
DHFL key milestones
|1985||IPO of DHFL|
|2003||Acquired DHFL Vysya|
|2009||Raised USD 48mn via QIP and Preference Allotment|
|2010||Raised USD 75mn and set up adhar HFC in collaboration with IFC|
|2011||Acquired First Blue HFC|
|2012||Raised USD 47mn through QIP|
|2013||Established Avanse Financial Services|
|2014||Acquired 50% stake in DLF-Pramerica Life Insurance|
|2015||Acquired 50% stake in Pramerica AMC|
|2016||Two public issues of retail NCDs|
|2016||DHFL Pramerica acquired Deutsche AMC|
|2017||Sale of 50% stake in DPLI by DHFL at 64X return|
Financials of DHFL
|Profit After Tax||529.0||621.3||729.2||2896.5||1172.1|
|Housing and other loan outstanding||40451.0||51039.7||61775.0||72096.2||91932.3|
|Book value per share||278.4||319.7||171.9||255.3||280.4|
|Earning per share (basic)||41.23||47.82||25.00||95.76||37.39|
What is DHFL?
Dewan Housing Finance Limited (DHFL) is the fourth largest housing finance company in India after HDFC, LICHF, and IHFL. Wadhawan Group is the promotor of Dewan Housing.
DHFL primarily offers loan to the low and middle segment in tier II and III cities. DHFL has an AUM (Asset Under Management) of ₹1,10,000 crore (March 2018).
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.