Money & Banking

Despite the turmoil, DHFL buy is an opportunity for Piramal Group

Surabhi Mumbai | Updated on June 10, 2021

The main attraction of DHFL for the Piramal Group is the scale of its operations and branch network

Mortgage financier Dewan Housing Finance Corporation Ltd (DHFL) has been in troubled waters for over 18 months now with its financial position seeing a significant decline but it is expected to help Piramal Enterprises Ltd scale up its consumer lending business.

In the fourth quarter of 2020-21, DHFL was back in the black with a net profit of ₹96.75 crore. However, this was largely because it had not made provisions for interest on borrowing.

Losses widen

For the full fiscal 2020-21, its net losses widened to ₹15,051.17 crore from a net loss of ₹13,455.81 crore in 2019-20. Total revenue from operations or net sales fell 8.2 per cent to ₹8,770.65 crore in 2020-21 from ₹9,557.96 crore in 2019-20.

But compared to peers such as GIC Housing and SRG Housing Finance, DHFL’s net sales are still high.

Its total assets fell sharply by 18.3 per cent on an annual basis to ₹70,358.66 crore last fiscal and it had a negative net worth of ₹20,645.31 crore.

“In an IBC process, the quarterly profit and loss is not important. The asset side of the book is being bought and the liability side gets extinguished,” said an expert, who did not wish to be named.

“DHFL is a good buy. It continues to do well and the quality of its book is still fine despite all the turmoil,” he further said.

According to sources, PEL is hoping that the implementation of the resolution will be completed by August.

The main attraction of DHFL for the Piramal Group is the scale of its operations and branch network, which the latter hopes to use to build its retail lending book.

The mortgage financier also has close to 10 lakh customers. According to its annual report 2019-20, it was present in 305 locations in the country. PEL has a financial services business, which registered net sales of ₹7,033 crore last fiscal. Of this, PCHFL provides end-to-end financing solutions in both wholesale and retail funding across sectors.

As part of the resolution plan, DHFL shares will be de-listed after the acquisition. PCHFL would be merged with DHFL.

PEL has also launched a retail financing platform in November 2020, which offers seven products.

Lending book

“The overall lending book is at about ₹45,000 crore, of which ₹5,000 crore or 11 per cent is from retail. DHFL book has a substantial retail portion as well,” Jairam Sridharan, CEO, Piramal Retail Finance, had said in April, adding that in the medium term, it plans to grow the retail book to about two-thirds of the financial services business.

A recent note by ICICI Securities, after PEL’s annual results, had said that the group’s core objective is to transform into a well-diversified lending entity with share of retail rising to 50 per cent. “This will primarily be driven by organic build-up of retail lending, completion of DHFL acquisition, and rationalising wholesale lending and making it more granular,” it had said.

Published on June 09, 2021

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