This Is How A Cluster Of Factors Helping DHFL Reach Greater Heights

When investor and trader, Rakesh Jhunjhunwala, purchased 25 lakh shares of Dewan Housing Finance’s (DHFL) equity in October 2013, the latter’s market value was a mere Rs 1,955 crore. In fact, the worth of the enterprise remained muted at about the same value since May 2010. But you could call Jhunjhunwala’s move a stroke of pure genius because today in a span of less than four years, that value has multiplied 8.5 times — and is now worth Rs 17,500 crore.

Over the last two years, DHFL has picked up steam. And now in 2017, supercharged by a new interest-subvention scheme covering the middle-income group, DHFL, with a loan size that averages about Rs 16 lakh, can see nearly three-fourths of its new loans falling under this scheme. So, the scheme’s timing couldn’t have been better for DHFL. Having been into housing finance for the last 33 years and operating out of 550 locations, DHFL has perhaps lagged the pace of growth of other housing finance companies such as Indiabulls Housing Finance.

In fact, in FY14, assets of both Indiabulls and DHFL were similar, at about Rs 43,000-odd crore. In FY17, Indiabulls Housing Finance (IBHF) pulled ahead; its assets surged past the Rs 1.02 lakh-crore mark, while DHFL’s balance sheet was Rs 92,297 crore. In market value, Indiabulls stands at Rs 53,421 crore compared to DHFL’s Rs 17,374 crore.

Now, as the government’s subvention scheme of providing interest subsidy to middle-income section continues, will DHFL power ahead? For a long time now, DHFL has operated in the “affordable housing” segment in rural and semi-urban areas and in tier 2-3 towns. While IBHF is more an urban operator with larger loans against property, similarities are not strictly comparable.

A Roof For All

Affordable housing is only now beginning to be recognised after the government launched its “Housing For All by 2022” scheme. Brokerage and investment firm CLSA estimates that affordable housing is a Rs 4.5-trillion opportunity from the present Rs 1.6 trillion in FY17. This also enables DHFL to put the spurs to its loan book — and growth rates. CMD Kapil Wadhawan (in picture) aims to hasten the pace of growth and manage Rs 2 lakh crore in AUM or assets under management (from the present Rs 88,236 crore) by 2020.

“We want to grow our AUM to Rs 2 lakh crore by 2020,” says Wadhawan. “We don’t need equity capital for the next 18-20 months; at the same time this is a strong sustainable business model. Housing finance has become a fairly commoditised thin-margin, high-volume business today. But the customer is most important.”

In fact, the late Rajesh Kumar Wadhawan launched DHFL precisely for this segment to provide housing finance to the low- and middle income back in 1984. Now, the junior Wadhawan is consolidating all his business under one roof, a holding company, Wadhawan Global Capital, with direct and indirect stakes not only in the flagship housing finance arm, DHFL, but in education loans and a life insurance business.

“We have added financial products and strengthened our under-writing expertise, focusing on building a dedicated financial services company,” says Wadhawan.

The group will soon launch a general-insurance business. Wadhawan believes that the same growth story as in life insurance of an under-penetrated market will play out. With about 78 per cent of the population uninsured, growth rates in the life-insurance business should clearly and steadily increase. With that logic on the general insurance front, many homes are uninsured, and health insurance is emerging as a fast-growing segment, since people are turning health-savvy.

In fact, Wadhawan Global Capital has been instrumental in infusing in its flagship arm, DHFL, a fresh growth capital. This has helped boost the housing finance major’s capital structure and reduced its net debt-to-equity ratio from 11.75 to 9.30 in 2016. With this capital infusion, DHFL will grow its lending business comfortably in the next 18-24 months without the requirement of additional capital.

For DHFL, this is a welcome infusion. This move alone has boosted its net worth from Rs 5,017 crore in FY 16 to Rs 7,966 crore, a 59 per cent rise. In turn, this bolsters its tier-1 capital adequacy ratio to over 14.75 per cent, the highest in the last five years.

One of its segments growing rapidly is the loan-against-property-book, focusing on SME loans, bulking up traditional home loans, and securitising a part of its assets. At present, out of the Rs 82,236 crore AUM, Rs 12,001 crore is securitised to third parties, where DHFL has sourced loans and is managing them.

Of course, the boom in the segment now renders it vulnerable to competition, with many operators enticed by the safety of the asset class. Housing assets usually have very low net NPAs, less than 1 per cent, implying greater profitability for customers. But competition means that operators have to up their game and source more loans from end consumers.

For DHFL, its 550 locations give it an edge, a differentiator that translates to the quantum of housing loans it can process in a short time. For this, it has upped its technology and centralised its decision-making for home loan disbursements at three locations.  

A clear advantage of the technology is that it allows DHFL to map areas through global satellites. Simultaneously, availability of financial information through credit bureaus means that it can assess a customer’s credit-worthiness at one location. DHFL is banking on such technology to penetrate further into the interiors.

“We are probably the largest, with 350 branches through 500 locations, of which 80-90 per cent are of addressable districts,” notes Wadhawan.

Recognising the potential in low-cost housing demand, DHFL has been running Gruha Utsavs. Here, it brings together developers and customers for the latter to assess properties and check developments in faraway places under one roof. This not only helps DHFL press on with more sales, but customers, too, are able to assess many new properties in different places.

The Growth Story

However, looking at business growth is not enough as two important considerations such as sourcing of liabilities becomes critical for a rapidly growing housing finance company. In the last few years, DHFL has diversified its liabilities book to include non-convertible debentures, and raised over Rs 14,000 crore through a public issue of NCDs in 2017.

Concerns of asset quality must be brushed aside for now as so far DHFL’s gross NPAs are 0.97 per cent. It continues to perform on all fronts, and demonetisation has not dented the appetite of individuals buying homes. Despite its size and higher base, DHFL has seen its highest-ever growth in disbursements in the last four years, with a 33 per cent increase in the first quarter this year.  

In the past three years, Wadhawan has been taking steps to improve profitability and reduce costs; some of that is paying off now. Last quarter, profits grew 29 percent to Rs 261 crore. In the next few years, thanks to cost-control measures and the drive for additional volumes, profit growth is expected to be robust, surging to high double-digits.

“Macro-economic factors are favourable. NBFCs are growing faster than banks. DHFL has a 6-7 per cent market share, and a great opportunity,” says Alpesh Mehta, deputy head of research and head, BFSI,  Motilal Oswal. DHFL surely knows how to see, rather live the bigger picture.    

‘Competition has done its bit to broadbase the market’

In which segments do you anticipate the fastest growth?

We have home loans, loan against property, SME loans and development loans. All our channels are growing at a reasonably robust pace.  

How is your borrowing side doing as lending is fairly finance-intensive?

On the borrowing side, we are one of the few housing-finance companies to be approved and have a license for retail fixed deposits. So, we have an FD programme itself, which is about close to 9-10 per cent; again, FDs are for retail customers. They are predominantly senior citizens who want to place their funds in secured vehicles, backed by AAA ratings.

How is your AUM distributed?

Our AUM is close to Rs 88,236 crore on average, while DHFL’s home-loan ticket size is only Rs 16 lakh-17 lakh. DHFL portfolio of home loans is 67 per cent, and then you have the SME and other loans, which is close 17 per cent; the remaining is securitised loans which we are managing.

The affordable housing segment is driving growth. How has it benefited you?

Government support on the affordable  housing segment has added to the momentum. DHFL’s Q1 figures speak for themselves, with loan growth coming at 33 per cent. We should understand in Q3 and Q4 how much of this push is supporting growth. Competition has also done its bit to broad base the market, as it creates more awareness of loans.

Your financial parameters have improved. How would you assess them?

DHFL’s asset quality has become stronger, and the lower-than-benchmark NPAs are due to our sophisticated credit-assessment tools and procedures. This reflects a strong, secure customer profile.

How much of the new subvention scheme is responsible for this growth?

In Q3 and Q4, when we start submitting claims we will be in a position to understand what percentage of our business can be attributed to PMAY or what further growth is coming because of this scheme.