DHFL stock WARNING! Be careful before buying, it’s set to delist; share price hits upper circuit despite news

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June 08, 2021 1:57 PM

Dewan Housing Finance Corp Ltd (DHFL) share price hit 10 per cent upper circuit at Rs 22.85 apiece intraday on BSE, even as the debt-ridden company in an exchange filing said that its shares would be delisted.

The domestic market has been the best performer globally YTD (year-to-date), with the Sensex rallying 56.2 per cent in the past 12 months.

Dewan Housing Finance Ltd (DHFL) share price hit 10 per cent upper circuit at Rs 22.85 apiece intraday on BSE, even as the debt-ridden company in an exchange filing said that its shares would be delisted. Analysts suggest investors to stay away from DHFL stock, as it may be written down to zero soon. Also, investors who currently hold DHFL shares are advised to exit and book whatever their profit or loss. Yesterday, DHFL said in an exchange filing that the Mumbai bench of the National Company Law Tribunal (NCLT) approved Piramal Capital & Housing Finance Ltd’s insolvency resolution plan with certain conditions.

“As part of the Resolution Plan, the equity shares of the company are proposed to be delisted,” it said in a BSE filing. The shares, when delisted, would most likely become worthless. The resolution plan had already received approvals from the RBI in February and the Competition Commission of India (CCI) in April 2021.

DHFL stock at upper circuit: What should investors do now?

DHFL shares were locked in a 10 per cent upper circuit for the second straight day on Tuesday. Since June 2, the stock price has been mapping an upward trajectory, surging 27 per cent to date. India’s largest brokerage firm Zerodha, in a tweet, warned investors that the value of DHFL shares may be written down to zero. “Equity shares of DHFL are likely to be extinguished as part of acquisition of the company due to NCLT’s insolvency process. There can be a significant risk of you losing your entire investment by trading in this stock,” it said in a tweet. It also said that DHFL stock is at the upper circuit price today because there are no sellers. “Buy order will remain pending until filled,” it added.

Deepak Shenoy, Founder, Capital Mind, also asked investors to stay away from DHFL shares as the resolution plan stated that the company’s entire share capital (all current shares) will be cancelled. “This will happen soon. Means the shares being traded now are a ticking time bomb,” Deepak Shenoy said in a tweet.

Analysts suggest that at the current levels, it is better to sell and exit the stock. “Even as the stock is hitting 10 per cent upper circuit, it is advisable to book profit and exit the stock, as DHFL is soon going to be delisted,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told Financial Express Online. Analysts also suggested investors to not fall prey to hearsay on DHFL. “It is advisable to consider squaring off positions in DHFL as there is a risk of losing the entire investment made in the stock because when a company becomes insolvent, existing capital may be written off to zero,” Likhita Chepa, CapitalVia Global Research, told Financial Express Online.

Piramal Capital & Housing Finance’s Rs 37,250-crore offer for DHFL implies around 40 per cent recovery for the financial creditors on a total admitted claim of Rs 87,082 crore. State Bank of India (SBI) is a lead creditor to DHFL with admitted claims of Rs 7,170 crore. DHFL had gone bankrupt with more than Rs 90,000 crore in debt to various lenders, including banks, mutual funds and individual investors who kept fixed deposits with the company.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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