Shares of non-banking finance company (NBFC) Dewan Housing Finance Corporation (DHFL) have eroded 80 per cent of investors’ wealth in the five months till February 1. Will it recover? This will be clear in time to come.
Considering the financial health of the company, analysts are advising investors to avoid the scrip.
But historical data suggests DHFL shares have the tendency to rally after falling as much as 80 per cent. Going by the share movement pattern of last 20 years, shares of the company have recovered smartly every time there has been such a damage.
For instance, DHFL advanced over 2,000 per cent from Rs 5.50 on February 2, 1998 to hit Rs 120 on January 11, 2008. From that point, it plunged to Rs 27 on March 30, 2009, a fall of 78 per cent.
Then from the low of March 2009, the stock recovered 2,415 per cent to hit a high of Rs 678 on September 3, 2018. From there, the stock again tumbled to hit Rs 111.45 on February 1, 2019, a drop of 84 per cent.
Last week, investigative news portal CobraPost alleged that promoters siphoned off Rs 31,000 crore of company money. The company says the irregularity was committed by a person who is neither a shareholder nor a borrower.
Rating agency CARE recently reduced by a notch the creditworthiness of about Rs 1.2 lakh crore of DHFL’s outstanding securities, pointing out higher funding costs for para-banks after a series of defaults at infrastructure financier IL&FS.
Bonds, deposits and loans raised by DHFL from banks, mutual funds, insurers and superannuation funds faced the downgrade, with CARE citing DHFL’s shrinking share value and expanding borrowing costs to justify its rating action.
Sanjiv Bhasin, EVP-Markets, IIFL said, “We have an ‘avoid’ call on DHFL. One should try to stay with names like Bajaj Finance or LIC Housing Finance in the NBFC space. DHFL has to reduce debt to inspire confidence again. The fact that it is an over-owned stock by mutual fund could lead to oversupply pressure on the counter. Therefore, it is ‘avoid’ call from my side.”
DHFL is among the larger borrowers from mutual funds and their aggregate exposure (Rs 8,500 crore) is 70 basis points of debt AUM as of Dec-18. Banks’ exposure to the company is around Rs 40,000 crore (40 bps of loans).
The housing finance company posted a 36.7 per cent drop in December quarter net profit at Rs 313.60 crore against a Rs 495.44 crore profit posted for the third quarter of last financial year.
Gautam Duggad, Head of Research, MOSL, told ET Now, says the DHFL crisis is an evolving one. “As we had seen with IL&FS crisis, markets do get nervous around it,” he said.
“We will have to keep watching what happens there, because it has implications for the other participants in the system. It is very tough to take a call right now. As far as the NBFCs are concerned, the cost of fund has gone up and liquidity has tightened over the past couple of months. Our view is that in 2019, it will be very important to be cautious on this space. We have HDFC and LIC Housing Finance in our model portfolio and that is what we will stick with,” Duggad said.