Update | HFC
January 31, 2019
Target Price
Due to the development regarding the cobra post expose on DHFL, we
Investment Period
recommend a Neutral rating on the stock, given the significant uncertainties that
now surround the stock.
In order to address investor concerns, the management had conducted a
conference call with investors today. However, the management was unable to
satisfactorily counter some of the allegations made by Cobrapost by providing
concrete facts. Post the management’s concall there are still lots of unanswered
questions like
Delay in management’s response countering the Cobrapost allegations
with a line by line rebuttal backed by concrete facts and figures.
Whether MF/Banks would continue to lend to DHFL going forward and
whether the company will be able to manage redemption pressures in case
lenders start calling in their loans.
Whether the allegations will have an adverse impact on non-core asset
monetisation plan of the company.
Over the last 4 months, there has been a broader correction in markets and
especially midcap space & NBFC space, triggered by the IL&FS crisis amongst
other things. DHFL had also corrected sharply, however being a 1) “AAA” rated
company with 2) Deloitte as auditor, & 3) tightly regulated by RBI/NHB, 4) public
deposit taking company having large number of reputed banks/MFs as lenders,
and 5) major institutions as shareholder. Therefore the reasons for correction
were uncertain.
Management had taken several steps to resolve liquidity issue post IL&FS event.
However, before these measures could play out, the cobra post allegation has
emerged and significantly increased the risk associated with DHFL.
Hence, in our opinion, it will take long time for the dust to settle and for the
company to regain investor confidence. Considering the above issues, we believe
that the risk reward is not favourable at the current juncture. Thus, we recommend
a Neutral rating on the stock.
Jaikishan J Parmar
Research Analyst
022 - 39357600 Ext: 6810
[email protected]
Please refer to important disclosures at the end of this report
Update | India Research
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January 31, 2019