DHFCL NCD offer review

Published on Friday, July 29, 2016 by Dilip Davda

Dewan Housing Finance Corp Ltd (DHFCL) is a deposit-taking housing finance company registered with the NHB and focused on providing financing products for the LMI segment in India primarily in Tier II and Tier III cities and towns. DHFCL has been active in the housing finance sector in India since 1984. It provides 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. The company also provides certain categories of non-housing loans including loans for commercial property, medical equipment, and for plant and machinery. DHFCL has a robust marketing and distribution network, with a presence across 349 locations including 182 branches, 146 service centers, 18 circle/ cluster offices, 2 disbursement hubs and one collection center, throughout India as at June 30, 2016. In addition to its network within India, it has international representative offices located in London and Dubai. To broaden its customer base and to penetrate further geographically, the company entered into tie-ups with public and private sector banks, including a public sector bank for eastern India and two other banks for pan-India. To meet its working capital and repayment of existing debts, the company is coming out with a mega debt offer of Secured Non-Convertible Debentures having a face value of Rs. 1000 each.

The company plans to mobilize Rs. 1000 crore under Tranche-I and has a green shoe option for retaining oversubscription up to Rs. 4000 crore. Thus the aggregate size of the offer is the first such offer from private sector housing finance company so far. The offer is being made on 'First come - First Served' basis. Minimum application is to be made for 10 NCDs and in multiple of 1 NCD thereon, thereafter. The company has reserved 20% for QIBs, 20% for corporate, 30% for HNI and 30% for Retail category of investors. It has multi options of tenures and interest payments. Issue opens for subscription on03.08.16 and will close on or before 16.08.16.

It is offering interest payments on Monthly, Annually or Cumulative mode as per the choice of investors. The coupon rates are ranging from 8.74% to 9.30% and tenure of 3 yrs, 5 yrs and 10 yrs. For the first time, this company is offering CPI (Consumer Price Index) based coupon rate for 3 yrs. This offer is rated CARE AAA by CARE and BWR AAA by Brickwork. This rating indicates that instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk. Post issue its debt-equity ratio will stand enhanced to 12.04 from 11.25 (on consolidated basis). These NCDs will be listed on BSE and NSE. Although allotment is available in demat as well as physical mode, trading will take place in demat mode only.

On performance front, the company has been posting improvement in top and bottom line. Its income rose from Rs. 3216.36 crore in FY12 to Rs. 7856.65 crore for FY16 with commensurate rise in net profits from Rs. 355.26 crore for FY12 to Rs. 749.30 crore for FY16. It has over Rs. 70000 crore AUM as at 31.3.16.

This issue is lead managed by Edelweiss Financial Services Ltd, AK Capital Services Ltd, ICICI Bank Ltd, SBI Capital Markets Ltd, Trust Investment Advisors Pvt Ltd, Yes Securities (India) Ltd. Catalyst Trusteeship Ltd is the debenture trustee and Karvy Computershare Pvt Ltd is the registrar to the issue.

Conclusion: Offers with 'AAA' rating is most preferred by investors in debt market. Hence this offer is worth considering for investment for steady interest income.

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).