DHFL share price rise doesn’t outweigh fundamental risks; should you buy or sell the stock now?

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Published: July 17, 2019 6:21:06 PM

DHFL shares have risen in the last two trading sessions, reversing a large part of the loss on Monday following the company’s weak quarterly results and dismal business outlook.

 DHFL, debt recast plan, Dewan Housing Finance Company, industry news, short term finance,DHFL share, DHFL news, DHFL stock price, DHFL nse, DHFL bseDHFL shares have risen in the last two trading sessions, reversing a large part of the loss on Monday following the company’s weak quarterly results and dismal business outlook.

DHFL shares have risen in the last two trading sessions, reversing a large part of the loss on Monday following the company’s weak quarterly results and dismal business outlook. But investors must not fall into the lure of buying DHFL shares only going by this rise in the stock price, said most of the analysts interviewed by Financial Express Online. The company is positive it will come out of the financial quagmire it is currently embroiled in, but analysts seem wary about DHFL’s claims in view of its bad fundamentals.

Most analysts are advising existing investors to exit from DHFL and cautioning new investors to stay from the stock as they will only lose their hard-earned money. DHFL shares plunged sharply on Monday after the company made its much-delayed Jan-Mar results public on 13 July 2019. DHFL’s shares plummeted 31 per cent on Monday, but have recovered since then. However, the shares are still 17 per cent lower at Rs 56.20 per share from Friday’s close.

Business is bad

The debt-laden housing finance company posted a net loss of Rs 2,223 crore for the Jan-Mar quarter. The company in a regulatory filing said it had defaulted on the interest payments due on two non-convertible debentures. DHFL said Saturday it is in an advanced stage of submitting its resolution process under the inter-creditor agreement as entered into by banks which will examine and firm up the terms of the resolution process by July 25, 2019, and make it operational before September 25, 2019. It cautioned investors about its inability to raise funds following rating downgrades. It said its business has been brought to a standstill with there being minimal or virtually no disbursements, which may raise a significant doubt on its ability to continue as a going concern.

Get out while you still can

There might be some speculative upside movement of 5-10% in the DHFL stock and the existing investors should use this as an opportunity to completely exit the stock, according to Gemstone Equity Research & Advisory Services’ Consultant Technical Analyst Milan Vaishnav.

“Waiting for the company to come out with a resolution plan would be blind speculation considering wrongdoing in the company. We can’t expect the valuation to scale up to 200-300 level like couple of months back. Waiting for it wouldn’t do any good for the investors. So, there can wait a bit for the upside to use to exit from the stock. This is not a stock to be owned by any new investors and they should be away from it unless they are looking from some speculative upside. I don’t see any structural upside in the stock which is only possible after a couple of stable quarters,” Milan Vaishnav told Financial Express Online. 

Wait for clarity

The existing investors need to wait till the DHFL comes out with a new resolution. They have a huge retail book but the problem is with the wholesale book of DHFL and the risk is also there. DHFL is in talks with some investors. Unless there is some clarity, it is difficult to say what to do and what not to do. The new investors should completely stay from the stock as it is a very risky stock, another analyst told Financial Express Online.

But there may be good news ahead

Most of the bad news has already been priced in, according to Sanjiv Bhasin, EVP-Markets & Corporate Affairs, IIFL. DHFL has guided that it is looking to sell the stake and monetise the rest of the assets. The company is looking for some time period. According to DHFL, by the end of this month, it should be through with equity infusion by capital and it will be able to reconcile or roll over the debts with the lenders, Sanjiv Bhasin told Financial Express Online.

“Our call is most of the bad news is in the price now. If you are in it, then stay there, you may see good times by the end of the year or by early March 2020. In the meantime, if anybody is not there it is better to be in a more strong financial name like SBI, ICICI and IndusInd Bank,” Sanjiv Bhasin said. 

When asked about the bondholders, Bhasin said they may get some money but there will be a haircut for sure. The government has given Rs 1 lakh crore window to help the NBFCs where the assets are stuck. I think macros are slowly improving and the crisis is about to end. It needs to be seen, how fast the assets can be sold to clear the debt.

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