Company Overview
Dewan Housing Finance Corporation Limited (DHFL) is a deposit-taking housing finance company registered with the NHB and focused on providing financing products for the low and mid-income (LMI) segment in India primarily in Tier II and Tier III cities and towns. DHFL has been active in the housing finance sector in India since 1984 and provide secured finance primarily to individuals, partnership firms and companies for the purchase, self-construction, improvement and extension of homes, new and resalable flats, commercial properties and land. They also provide certain categories of non-housing loans including loans for commercial property, medical equipment, and for plant and machinery.
Business Analysis
The company generates its revenues mainly from the housing finance business. The total share of Housing loan in the total income of DHFL was 79.5% in the year ended March 31, 2016. The Company was established in 1984 with the main objective to provide loans to satisfy the housing needs of the low and mid-income (LMI) segment.
Through their focus on the LMI segment, DHFL has evolved its loan sourcing expertise over a period of more than 30 years to better identify the needs of customers in the LMI segment and estimate their income and repayment capabilities. Their business strategies have been aligned to serve these segments effectively. DHFL has developed a suite of products that caters to all segments with a focus on the LMI segment in various geographical territories of India. Moreover, the company has recently created separate business verticals for housing loans and non-housing loans in order to allow each vertical to focus on its core business and use its expertise in underwriting loans.
Over the years, DHFL has seen a significant year on year growth in its loan disbursement. During Fiscals 2016, 2015, 2014, 2013 and 2012, DHFL disbursed loans in the amount of Rs 24,202.22 crore, Rs 19,821.54 crore, Rs 16,647.45 crore, Rs 13,357.73 crore and Rs 9,065.24 crore respectively.
As at March 31, 2016, DHFL's loan book stood at Rs 61,775.02 crore, and their assets under management were Rs 69,523.88 crore. Their gross NPAs as a percentage of their loan book was 0.93% and net NPAs as a percentage of their loan book was 0.58%. For the years ended March 31, 2016, 2015, 2014, 2013 and 2012, their total revenue from operations was Rs 7,311.83 crore, Rs 5,978.96 crore, Rs 4,965.58 crore, Rs 4,056.94 crore and Rs 2,435.14 crore, respectively, and Their profit after tax was Rs 729.20 crore, Rs 621.29 crore, Rs 529 crore, Rs 451.85 crore and Rs 306.36 crore respectively. Their revenue from operations and profit after tax grew at a CAGR of 31.6% and 24.2%, respectively, over the five fiscal years ended March 31, 2016.
The details of the offering (NCD) are as follows:
The details of the offering (NCD) are as follows:
| Issuer |
Dewan Housing Finance Corporation Ltd. |
| Offering |
Public Issue of secured, redeemable non-convertible debentures of face value of Rs 1,000 each, for an amount of Rs 1,00,000 lacs ("Base Issue Size") with an option to retain oversubscription up to Rs 3,00,000 lacs aggregating up to a Shelf Limit of Rs 4,00,000 lacs |
| Rating |
"CARE AAA (CARE Triple A)" by CARE
"BWR AAA (BWR Triple A)" by Brickworks |
| Security |
Secured NCDs: The NCDs proposed to be issued will be secured by a first ranking pari passu charge on present and future receivables of the Issuer for the principal amount and interest thereon. The NCDs will have an asset cover of 1.1 (one point one) time on the principal amount and interest thereon. The Issuer reserves the right to sell or otherwise deal with the receivables, both present and future, including without limitation to create a charge on pari passu basis thereon for its present and future financial requirements, without requiring the consent of, or intimation to, the NCD holders or the Debenture Trustee in this connection, provided that a minimum security cover of 1.1 (one point one) time on the principal amount and interest thereon, is maintained. |
| Face Value |
Rs 1,000 per NCD |
| Issue Price |
At par (Rs 1,000 per NCD) |
| Minimum Subscription |
10 NCDs and in multiples of 1 NCD thereafter |
| Tenure |
- Option I: 36 months (Monthly pay-out for interest)
- Option II: 60 months (Monthly pay-out for interest)
- Option III: 120 months (Monthly pay-out for interest)
- Option IV: 36 months (Annual pay-out for interest)
- Option V: 60 months (Annual pay-out for interest)
- Option VI: 120 months (Annual pay-out for interest)
- Option VII: 36 days (Cumulative)
- Option VIII: 60 months (Cumulative)
- Option IX: 120 months (Cumulative)
- Option X: 36 months (Annual pay-out for interest - Floating)
|
| Coupon rate [For Category I (QIBs) & II (Corporates)] |
- Option I: 8.74% p.a.
- Option II: 8.74% p.a.
- Option III: 8.74% p.a.
- Option IV: 9.10% p.a.
- Option V: 9.10% p.a.
- Option VI: 9.10% p.a.
- Option VII: N.A. (Since Cumulative)
- Option VIII: N.A. (Since Cumulative)
- Option IX: N.A. (Since Cumulative)
- Option X: Reference CPI + spread of 4.08% (Floating Rate p.a.)
|
| Coupon rate [For Category III (HNIs) & IV (Retail Investors)] |
- Option I: 8.83% p.a.
- Option II: 8.88% p.a.
- Option III: 8.93% p.a.
- Option IV: 9.20% p.a.
- Option V: 9.25% p.a.
- Option VI: 9.30% p.a.
- Option VII: N.A. (Since Cumulative)
- Option VIII: N.A. (Since Cumulative)
- Option IX: N.A. (Since Cumulative)
- Option X: Reference CPI + spread of 4.18% (Floating Rate p.a.)
|
| Trustee |
Catalyst Trusteeship Limited (formerly known as GDA Trusteeship Limited) |
| Listing |
The NCDs are proposed to be listed on NSE and BSE |
| Depository |
National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) |
| Registrars |
Karvy Computershare Private Limited |
| Mode of Allotment |
In dematerialised form only |
| Basis of Allotment |
First Come First Serve Basis |
| Issue Open Date |
August 03, 2016 |
| Issue Close Date |
August 16, 2016 |
| Deemed Date of Allotment |
The date on which the Board of Directors/or Finance Committee approves the Allotment of the NCDs for each Tranche Issue or such date as may be determined by the Board of Directors/ or Finance Committee and notified to the Designated Stock Exchange. The actual Allotment of NCDs may take place on a date other than the Deemed Date of Allotment. All benefits relating to the NCDs including interest on NCDs shall be available to the Debenture holders from the Deemed Date of Allotment. |
| Retail Investor(s) |
Individual Applicants who have applied for the NCDs for an aggregate amount not more than Rs 10 Lakhs in the Issue (including HUFs applying through their Karta) |
Note: PAN card is mandatory for subscribing to these NCDs. A self-attested copy shall be enclosed along with the application form.
For Category III & IV investors (HNIs and Retail Investors) the following options are available at the time of subscribing to the issue:
| Options |
I |
II |
III |
| Minimum Application |
Rs 10,000 |
Rs 10,000 |
Rs 10,000 |
| Face Value |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| In Multiples of |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| Tenor |
36 months |
60 months |
120 months |
| Interest Payment |
Monthly |
Monthly |
Monthly |
| Coupon |
8.83% per annum |
8.88% per annum |
8.93% per annum |
| Tax slabs (%) |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
Effective Yield -
Pre Tax (%) |
9.20 |
9.20 |
9.20 |
9.25 |
9.25 |
9.25 |
9.30 |
9.30 |
9.30 |
| Post Tax Returns (%) |
8.21 |
7.24 |
6.27 |
8.26 |
7.28 |
6.31 |
8.31 |
7.32 |
6.34 |
(Source: Prospectus to the issue & PersonalFN Research)
| Options |
IV |
V |
VI |
| Minimum Application |
Rs 10,000 |
Rs 10,000 |
Rs 10,000 |
| Face Value |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| In Multiples of |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| Tenor |
36 months |
60 months |
120 months |
| Interest Payment |
Annual |
Annual |
Annual |
| Coupon |
9.20% per annum |
9.25% per annum |
9.30% per annum |
| Tax slabs (%) |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
Effective Yield -
Pre Tax (%) |
9.20 |
9.20 |
9.20 |
9.25 |
9.25 |
9.25 |
9.30 |
9.30 |
9.30 |
| Post Tax Returns (%) |
8.25 |
7.30 |
6.36 |
8.29 |
7.34 |
6.39 |
8.34 |
7.38 |
6.42 |
(Source: Prospectus to the issue & PersonalFN Research)
| Options |
VII |
VIII |
IX |
| Minimum Application |
Rs 10,000 |
Rs 10,000 |
Rs 10,000 |
| Face Value |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| In Multiples of |
Rs 1,000 |
Rs 1,000 |
Rs 1,000 |
| Tenor |
36 Months |
60 months |
120 months |
| Interest Payment |
N.A. (Since Cumulative) |
N.A. (Since Cumulative) |
N.A. (Since Cumulative) |
| Amount on Maturity |
Rs 1302.17 |
Rs 1556.35 |
Rs 2433.33 |
| Tax slabs (%) |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
Effective Yield -
Pre Tax (%) |
9.20 |
9.20 |
9.20 |
9.25 |
9.25 |
9.25 |
9.30 |
9.30 |
9.30 |
| Post Tax Returns (%) |
8.32 |
7.43 |
6.52 |
8.43 |
7.59 |
6.72 |
8.61 |
7.89 |
7.12 |
(Source: Prospectus to the issue & PersonalFN Research)
| Options |
XI (Unsecured NCD) |
| Minimum Application |
Rs 10,000 |
| Face Value |
Rs 1,000 |
| In Multiples of |
Rs 1,000 |
| Tenor |
36 months |
| Interest Payment |
Annual |
| Amount on Maturity |
Rs 2,000 |
| Coupon |
Reference CPI + spread of 4.18% |
| Tax slabs (%) |
10.3 |
20.6 |
30.9 |
Effective Yield -
Pre Tax (%) |
9.20* |
9.20* |
9.20* |
*For the 1st year and subject to reset annually based on Reference CPI for the 2nd and 3rd years.
(Source: Prospectus to the issue & PersonalFN Research)
Well, after reading the details of the NCD (as provided above), there may be still some more questions popping up, which are answered hereunder:
- Will I get any tax benefit if I invest in these NCDs?
No, these NCDs do not entitle you to any tax benefit nor are these any "infrastructure bonds".
- Is interest on this NCD Tax Free?
No, the interest on these NCDs is not tax free – it is chargeable to tax. The interest income will be taxed under "income from other sources", and will be brought to tax at the respective income tax rates you fall under. However no tax will be deducted at source as these NCDs are issued in demat form and are listed on the exchange.
- What is the Tax Treatment on Capital Gains for these NCDs?
As per the IT Act, a listed debenture is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer. If you happen to sell these NCDs before 365 days, you will have to pay short term capital gain tax (as applicable to you as per your tax slab) arising on the profit. Provisions of long term capital gain tax will be applicable for any sale of securities after 365 days. Any long term capital gain on these securities will be taxable @ 10% without indexation benefits or 20% with indexation benefits, whichever is lower.
- Can a minor apply to these NCDs?
Yes, a minor can apply for these NCDs, but only and only through a guardian.
- Can one apply in joint names?
Yes, one may apply in a joint name. However, the demat account will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
- Who will get the interest in case of joint application?
In case of joint application, interest will be accounted to the first holder only.
- My demat account is in joint name, but I want to apply in a single name?
In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
- If I'm an NRI can I invest in these NCDs?
No, NRIs are not eligible to invest in these NCDs.
- Is there a lock-in period while investing?
No. There is no lock-in period for these NCDs. In terms of providing liquidity, these NCDs are proposed to be listed on the Bombay Stock Exchange and the National Stock Exchange.
- In whose favour the cheque is to be made?
Cheques/Drafts have to be made in the favour of "DHFL NCD Escrow Account" and crossed "A/C PAYEE ONLY"
OUR VIEW:
PersonalFN believes that the yields on this investment opportunity offered by DHFL are attractive. The credit rating too, allotted to the issue is high "CARE AAA (CARE Triple A)" issued by CARE and "BWR AAA (BWR Triple A)" by Brickworks. Capital adequacy ratio of the company looks robust at 20% (as on March 31, 2016). The company maintains a minimum capital adequacy of 12% which is higher than the limit prescribed by NHB.
Net NPA's (Net Non-Performing Assets) stood at Rs 573 crores or 0.93% of Gross Retail Loans for the financial year ended March 31, 2016. The company has implemented the provisions of the SARFAESI Act to their advantage for recovery of NPAs. The stringent recovery procedures followed by the company also helps ensure good collections and low NPAs. As at March, 31, 2016 the NPA amount stood at Rs 57,307 lacs. They have adopted a three-pronged approach that includes; (i) effective monitoring of all standard accounts to capture early alert signals and recover overdue installments; (ii) persuasion with all NPA borrowers through personal contacts for recovery of the overdue amount, to upgrade the account to standard category; and (iii) within one to two months of the account turning NPA, initiation of the process under the SARFAESI Act to recover the outstanding amounts. This approach has helped DHFL upgrade a large number of accounts. The housing finance industry in India is growing rapidly and is served by multiple institutions that cater to people in diverse geographies and across income spreads. Minimum ticket size has purposefully been kept low at Rs 10,000 to encourage the retail participation.
Thus taking into consideration a holistic view, we believe that investors who wish to invest in this NCDs of DHFL can opt for the fixed rate NCDs with a relatively shorter tenure of 36-60 months, rather than investing for tenure of above 60 months. One can choose between monthly interest pay-out option or annual interest pay-out option or cumulative option, depending upon his / her cash flow requirements.
DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014
We Quantum Information Services Private Limited hereby confirm that:
- We do not have any financial interest in any securities of Dewan Housing Finance Corporation Limited (DHFCL);
- We do not have actual/beneficial ownership of one per cent or more of Securities of DHFCL;
- We do not have other material conflict of interest with DHFCL.
- We have not managed or co-managed public offering of securities of DHFCL;
- We have not received any compensation or other benefits from DHFCL or third party in connection with the above report / article.
General disclosure
- The Research Analyst has not served as an officer, director or employee of the subject Company.
- QIS or the Research Analyst has not been engaged in market making activity for the subject Company.
Subject Company means Dewan Housing Finance Corporation Limited
Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667
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