Shares in one of India's biggest home loan and property finance companies, Dewan Housing Finance Ltd (DHFL), are expected to fall sharply on Monday after the lender reported dismal results and warned about its grim financial situation.
DHFL reported a net loss of 22.23 billion rupees ($324.3 million) for the quarter ended March 31, in a regulatory filing late on Saturday. It also said it had defaulted on the interest payments due on two non-convertible debentures.
"The share price would be impacted significantly. I expect it to be down around 10-15% when markets open as their business has been significantly affected," said Arun Kejriwal, founder of independent advisory firm Kejriwal Research.
The company's ability to raise funds has been substantially impaired and the business has been brought to a standstill with there being minimal/virtually no disbursements, DHFL said in the note accompanying the results.
"The most concerning thing in the result is that increased provisioning amount of 32.8 billion rupees ($478.5 million), which has suddenly come up in Q4FY19," said Hemindra Hazari, an independent banking analyst, adding this implies either a sudden asset deterioration or that stressed assets are finally getting recognised.
"This is not a great sign," said Hazari.
DHFL's results are the latest sign of growing stress in India's finance sectors as state-owned banks grapple with bad debts and a recent liquidity crunch in the shadow banking industry.
This, in turn, has hurt economic growth, which in the March quarter fell to its lowest level in more than four years, presenting a challenge to Prime Minister Narendra Modi, who recently won a second term in office.
RESTRUCTURING PLAN
DHFL has said it is talking to bankers and other lenders on restructuring its borrowings and is in discussions to sell its retail and wholesale portfolio.
The company will submit a resolution plan shortly, which may include extending the tenure of loans, converting debt into equity, seeking additional working capital and inducting a new management team and financial investors, sources who attended a meeting with its lenders on Thursday told Reuters.
"We are in constant touch with the DHFL management and we're confident that a resolution plan can be worked out in the coming days," said one of the bankers involved in the recovery process, requesting anonymity.
Still, investors say the company's dire warnings about its financial situation raising doubts around the "ability of the company to continue as a going concern," will remain in focus when markets open on Monday.
"The losses are not surprising but the quantum is definitely surprising," SP Tulsian, an independent investment adviser told television channel CNBC TV18.
"I don't accept these arguments about the company finding a solution in the next couple of months as that seems unlikely," he said, noting that DHFL's management has been trying to sell assets for the last four to six months.
