Rakesh Jhunjhunwala wealth hit by DHFL plunge earlier, but shares rise 10% today! Should you buy?

Finally, a rebound was witnessed in Dewan Housing Finance Corp (DHFL). The NBFC-major has seen some really difficult days, making many investors poorer by massive amounts. Interestingly, it was ace investor Rakesh Jhunjhunwala who was impacted in by the turmoil in DHFL. However, Monday was a new day for DHFL stock and it has jumped by nearly 10% after touching an intraday high of Rs 122.55 per piece on BSE. At around 1144 hours, DHFL was trading at Rs 117.10 per piece above by Rs 5.65 or 5.07% on the index. Some investors might have bagged profits with this rise in DHFL shares, but investors like Rakesh Jhunjhunwala had lost a lot earlier. Interestingly, DHFL is seem to gain traction and majority experts are optimistic on shares. 

This is why investors are buying DHFL shares.

Firstly, DHFL has appointed an independent Chartered Accountant firm to verify the allegations made in the complaint and submit a report in a time bound manner. A CobraPost report had claimed that DHFL was involved a Rs 30,000 crore fraud. 

Secondly, DHFL board members have approved move to disinvest shares to BCP Topco VII Pte Ltd, which is controlled by private equity funds managed by Blackstone. DHFL will transfer its entire 9.15% holding in Aadhar Housing Finance Limited to BCP.

Rakesh Jhunjhunwala investment in DHFL!

During Q3FY19, Jhunjhunwala trimmed his holding in DHFL by 0.73%. Now he has about 2.46% stake in DHFL with 7,728,500 equity shares.

According to a TrendLyne.com data, the big bull of Dalal Street’s wealth in DHFL now stands at Rs 85.6 crore, which is a massive fall from Rs 124 crore to Rs 133 crore levels last week. 

Data revealed that, last week, Jhunjhunwala lost heavily in DHFL, as the company tumbled by more than 44%. In past six months, DHFL has nosedived by a whopping 81%! 

Can DHFL change the losing trend and benefit Rakesh Jhunjhunwala and other investors? 

Surprise! A majority of experts have given a Buy rating on DHFL. 

Kunal Shah and Prakhar Agarwal analysts at Edelweiss Securities said, “We see the road to recovery to be arduous as:

 a) incremental funding (availability and cost) is unlikely to come through easily, leading to continued contraction in onbalance sheet book and modest AUM growth;

 b) transition to retail focus and a cutback in project finance to 5% (17% currently) will impact NIMs, earnings and RoE for a while; and

 c) even though asset quality held up , the proportion of project finance and LAP remains high.”

Considering higher assignment income (though core remains modest, the duo at Edelweiss said, “we revise our earnings upwards by >80/35% (albeit on a low base) for FY19/FY20E leading to 5%/7% rise in ABV. However, as core earnings witness a dip and RoEs also remain <13% by FY21E, valuations will be capped at 0.9x P/ABV and hence, we are not revising our target price. Maintain ‘BUY’ with a TP of INR277.”

In Motilal Oswal’s view, DEWH is a focused play on low-ticket housing. While the company had been gaining traction in core affordable housing loans, it opportunistically diversified into non-retail loans over the past few years. However, this is expected to normalize and DEWH is likely to focus on its core strength of being a low-ticket affordable housing financier. Maintain Buy with a TP of INR300 (0.8x FY20E BVPS).

On the other hand, Angel Broking firm stated that, due to the development regarding the cobra post expose on DHFL, we recommend a Neutral rating on the stock, given the significant uncertainties that now surround the stock. 

Analysts at Angel Broking believe, that it 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.

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, Angel said, “ the reasons for correction were uncertain.”

Whether DHFL will get on to the road to recovery will surely be keenly watched and that applies to Rakesh Jhunjhunwala as much as it does to other current investors and those who are eyeing it as a buying opportunity.