BackDHFL’s Q3 metrics show months after September were far painful
As DHFL was busy raising money to pay off maturing debt, it could hardly give out loansSeptember not only took away 74% of its market value but also evaporated funding sources and forced it to scrounge for money
PremiumThe mayhem triggered by a liquidity crisis among non-banking financial companies in September has been finally reflected in the balance sheet of Dewan Housing Finance Corp. Ltd (DHFL).
As the affordable housing loan provider was busy raising money to pay off maturing debt, it could hardly give out loans. Hence disbursements dropped a massive 95% sequentially to a mere ₹510 crore for the December quarter.
For DHFL, September not only took away 74% of its market value but also evaporated funding sources and forced it to scrounge for money to pay off debtors on the due date.
Missing a due date meant being clubbed into the category of a bad asset like Infrastructure Leasing and Financial Services Ltd (IL&FS). That would be dangerous for future growth and DHFL was aware of it.
So the company paid off ₹18,000 crore of liabilities of which ₹9,965 crore were short-term commercial paper. Still, lenders were hardly convinced about its repayment capacity, which meant incremental funding wasn’t coming.
DHFL also bundled and sold off its high-yielding loans, which was another reason for the 13% contraction in its loan book for the December quarter.
Considering all this, revenue also fell and led to a net profit fall of 37% from the year-ago period.
The washout quarter is already reflected in its stock price. The stock has hardly recovered after that 74% plunge in September. It has fallen a further 40% since then.
But is DHFL a bad penny?
The company’s December quarter results are an effect of the liquidity crisis. They also show that all its borrowers are not in the best of their health.
Its gross bad loans as a percentage of the loan book rose to 1.12% from 0.96% a year ago. The fact that DHFL has bundled off a chunk of its developer finance portfolio to banks means that its best-class assets are with the buyers of these bundled loans now. Banks would press for purchase of high-quality assets.
Considering the stress that realtors are under, developer finance is riskier than before.
But does DHFL have any redeeming metrics?
To its credit, the company has laid out a plan on how it will manage its liquidity position and capital. DHFL has said that it would continue to sell bundled loans and aims to reduce its developer finance book by 50%. It would also offload non-core assets to boost capital, the company said in its earnings release.
These measures should provide some comfort to investors. That said, for the stock to have a better fate, DHFL not only needs to continue to prove it can raise money but also get back on its growth trajectory.
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