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What’s ‘NOT’ wrong with DHFL?


I was preparing stock analysis report and needed some additional data to complete my part, suddenly saw some recommendations published as:

  • Buy DHFL, target Rs 743: Cholamandalam Securities (08 Oct 2018).

  • Buy DHFL, target Rs 708: Yes Securities (26 Sept 2018).

  • Japanese brokerage firm Nomura upgraded DHFL to ‘Buy’ with a target price of Rs 775.

If you see closely, DHFL is trading in the range of 274 since Sept 2018 and still analysts and brokers are giving targets with an upside potential of 280% which is more than huge. I was sure that I’m missing something really big. Here are some insights about DHFL that every investor needs to know RIGHT NOW before it’s too late.

  1. DHFL has book value of 331 Rs. at Current market price 237 Rs. (last I checked). Many Analysts believe that if a stock trades below its book value then the stock is very likely to stabilize near its book value post correction i.e. 39% upside potential without any analysis. Stock already plunged more than 50–60% post-IL&FS Crisis.

  2. Stock P/E: 4.94, Industry P/E is 21.

  3. Rumors didn’t affect the profit rally as Company has good consistent profit growth of 21.45% over 5 years.

4. EBIT rose massively 3,600% in a decade which is not an ordinary number. this clarifies the doubt that company knows how to make money. * Compounded Profit Growth 10 Years: 30.37% * Compounded Sales Growth 10 Years: 34.95%

5. There are always some factors that most of the investors missed to check and that is Pledged shares and Contingent Liabilities.

Let me tell you DHFL Pledged percentage: 0.00 % with a contingent liability of 412 Cr. with Net worth of 8,796 Cr.

Source : bseindia.com

6. Post IL&FS crisis DHFL’s management held a conference call some of the interesting highlights of the call are as follows:(Official Statements)

The company has not defaulted in any kind of repayments and has enough liquidity to meet obligations till March 2019.

The management has explicitly stated that DHFL has no relationship with IL&FS, whether direct or indirect.

Promoters have not pledged their shares and hence stand un-encumbered. Also, none of its credit ratings are under a watch and DHFL continues to enjoy AAA ratings.

The marginal cost of borrowing for the company in Apr- July 2018 was at 8.65 per cent. They recently issued bonds worth Rs 110bn, with 3/5/7 years maturity at a coupon of 9.1–9.3 per cent.

The company has nearly Rs 100bn due for repayment till March 2019, whereas the recoveries due from assets are worth nearly Rs 250bn.

Since the company has no liquidity constraints till March 2019, the management doesn’t expect any increase in the cost of borrowings. That said, any increase will be passed on to the customers as 99.11 per cent of loans are floating rate loans. In the liabilities front only 7 per cent are at floating rates. o The management’s endeavor will be to maintain the NIMs at 3–3.85 per cent levels.

The company has lowest delinquencies, robust credit underwriting standards and a very strong collections & recovery team. The GS-3 continues to be at 0.93 per cent and the management sees no stress in the developer portfolio, going ahead.

7. Look at the official financial statement published few days back.

From interest income, commissions and net income, all are in line with consciences. Net profit rises 52% in Q2 YoY.

8. Liquidity: Despite NBFC liquidity crunch DHFL has repaid liabilities of nearly Rs 14,000 crore, including over Rs 9,000 crore of commercial paper repayments. This repayment target was met by the company through internal liquidity generation and “minimal external borrowings”.

9. On charts:

10 out of 28 major indicators shows DHFL Bullish on charts whereas 10 show Neutral and 8 Bearish.

10. Future Outlook:

  • Assets under management (AUM), too, grew by 38% year on year, touching Rs 1,30,182 crore as on September 30, 2018.

  • It didn’t default on any bonds or delayed repayment of any liability. Also, the promoters haven’t pledged any shares or availed any loan against share.

  • loan book outstanding grew 35% on-year to Rs 1.1 lakh crore at the end of the second quarter. Total loan disbursements increased 39% to Rs 13,870 crore, primarily led by affordable housing segment.

As per official data.

During the quarter under review, DHFL maintained robust performance led by loan growth disbursements in the affordable housing segment. Considering that two-thirds of DHFL’s home loan portfolio is retail home loans, wherein our average home loan ticket size is below Rs 11 lakh, DHFL has endeavoured to protect margins at 300 to 305 basis points.

DHFL has in approximately 349 locations, including approximately 182 branches, over 146 service centers, approximately 18 circles/cluster offices, over two disbursement hubs and a collection center in India.

“Buy when there’s blood in the streets, even if the blood is your own.”- Baron Rothschild

Nutshell: One should buy quality stocks when they are in pain. As an investor, you must rely on numbers and logic rather than recommendations. So, Be wise, invest wise, take risk, earn heavy!

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Major Topics: Stock Market Introduction, Terms and Jargons, Stock Fundamentals Analysis ( Balance sheet Analysis, PL statement Analysis), Financial Ratios, Major Corporate Actions, Stock Technical Analysis ( 5 methods), Forecasting of future price of the stock, Different Valuation methods of the company, Risk Management, Taxation, Derivatives (Basics) — Options and Future trading.

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