DHFL Records 95% Fall in Disbursements! What Are the Implications?
Moneylife Digital Team 28 January 2019
Disbursements of DHFL during the December 2018 quarter shrunk to just Rs510 crore, a fall by over 95%. This raises serious questions about how the business will grow. According to analysts, DHFL reported a slow-down in business 'as per expectation' after IL&FS and liquidity crisis. The focus of management has shifted to conserving cash and, hence, the assets under management declined by 3% on sequential basis. It appears that DHFL management repaid loans of around Rs18,000 crore up to December, since the IL&FS crisis. 
The management claimed to securitising assets to ensure the liquidity and repayment of liability. In the conference call after the results, the management said it will plan to focus more on retail assets and, hence, developer segment will decline to 5% from current 17% range. The earnings spread is expected to compress significantly due to aggressive sell down approach; however, it would provide much needed liquidity to the company. The earnings will remain under pressure for a few more quarters due to such transformation in business. Change in assets mix towards retail would help in lowering delinquencies and will reduce credit cost going ahead. Further, management is planning to divest its non-core investment. The deal is expected to finalise soon which could boost book value by Rs2,000 crore. 
We believe that a dramatic fall in disbursements will have a huge impact on the company. A finance company survives by a continuous process of borrowing and lending. The lack of disbursements will make it difficult for DHFL to generate cash to repay its lenders. If the business shrinks or stagnates, it will be increasingly difficult for DHFL to sustain its existing operations, leading eventually to liquidity crunch.
The business of a non-banking finance companies (NBFCs) like DHFL revolves around the cycle of credit, which involves getting loans at a low cost and disbursing them to the clients at a higher rate of interest. This is what results in a positive net interest margin at its most basic level. This cycle is now broken. 
We believe that securitisation will have a limited benefit. DHFL has grown at a breakneck speed all these years and now has borrowings of a stupendous Rs1 lakh crore. A repayment of Rs32,000 crore has to be made over the next one year, of which Rs5,000 crore will be paid in the March quarter of FY18-19. Not a rupee of this borrowing can be wished away. Whether the assets represents this borrowing accurately remains to be seen. The key point about DHFL now is that can it succeed in deleveraging gently or will the sudden braking trigger an acute liquidity crunch.
We have emailed the DHFL management our questions. We will update this article as and when we receive any response from the company.
Pinaki Basu
5 years ago
now why their CEO resigns? another RED Alert!
Mahesh S Bhatt
5 years ago
Shadows Banking systems haunts we would like how other NBFC's behave as time flows There is too much of money less of accountability Too many Laws No rule of Law Welcome India Mahesh Bhatt
5 years ago
Madhu Building
5 years ago
"The lack of disbursements will make it difficult for DHFL to generate cash to repay its lenders." - This seems to be the most irrelevant statement in the article. Cash is generated from previous loans not from disbursements.
Pavan Laddad
Replied to Madhu Building comment 5 years ago
Correct, even I was trying to figure-out the logic!
D Samanta
5 years ago
Just use own mind as told investment guru.. WE ARE CUSTOMER OF NEWS CO
D Samanta
5 years ago
All news co doing just their business, Sansani news....
Ramesh Poapt
5 years ago
very surprised why Crisil has still maintained AAA status?
if DHFL deserves it, then we may be wrong in analysis.
in due course crisil may downgrade rating. the matter worth
constant tracking
R Balakrishnan
5 years ago
What I can read between the lines is that the co is trying to sell off whatever it has and close out the debt. Clearly, a recognition that funding lines are not easy to come by.
Replied to R Balakrishnan comment 5 years ago
Sold RS 1725 crore odd bonds with primary bonds RS 1400 odd crore to Oaktree at 20% IRR & DHFL subscribed to 325 crore as secondary bonds ....secondlty bonds will be paid after primary bonds are paid in full ! DHFL is facing big crises
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