CMD Kapil Wadhawan shared no financial details of the DLF deal, but expects it to be value accretive.
Dewan Housing Finance Corp , which is looking to buy 74 percent stake in DLF ’s life insurance joint venture with US-based Prudential International Insurance Holdings has no plans to raise funds from the market now.
Though CMD Kapil Wadhawan shared no financial details of this deal, he told CNBC-TV18 that the company has already asked for regulatory approval for this deal. “We have been scouting for a right partner and we expect this deal to be value accretive,” he added.
Property developer DLF has agreed to sell its 74 percent stake in its life insurance joint venture as a part of its strategy to divest "non-core" assets to pare debt.
He further added that the company will continue to focus on its core business of home loan and housing finance.
Below is the edited transcript of his interview:
Q: Could you just walk us through the deal and some more parameters in terms of the valuation that this deal has been struck at?
A: Significant development from our standpoint. After being in housing finance for 30 years and successfully distributing life insurance for the past couple of years we thought it was time to look at manufacturing of life products and there came in the opportunity. We have been in the market for some time now looking at the right partner and we thought that this transaction with Prudential, there was a common meeting of minds.
Prudential is a strong large insurance player. They have a presence in multiple markets around the world and with strong credentials of consumer lending on the ground, we thought it would be a good partnership with Prudential and there was incline from DLF to get out of this space. Unfortunately I am not in a position to spell out any financial details as of now because we are still awaiting regulatory approvals on this transaction. We have made the agreement yesterday and have approached the regulators for seeking their consent.
Q: How swiftly do you think you can ramp up this business because Pramerica Mutual Fund has a very small market share in the insurance business and the business was also in the red? Do you think you can ramp it up much faster from here?
A: We believe so. The existing shareholders have already pumped in a lot of capital, they have already invested close to Rs 600 crore. We believe that with our kind of distribution on the ground and a strong loyal customer base which is increasing and our existing contribution to the existing underwriter, we will be in a position to ramp up this business very shortly.
Q: What about capitalizing this deal because this will put some pressure on your tier I capital? How do you intend to shore it up?
A: It has been value accretive that is all I can say and in the long run it is going to be value accretive for the shareholders of DHFL. We have a significant contribution to make to this joint venture, our distribution network and existing business that we do on the ground. But in the long-term we don't see contributing much into the capital of this business considering that there is already enough contribution being provided by the company on account of its distribution and the existing life business.
Q: Will DHFL need to raise any money in order to fund this deal whether via debt or some kind of equity offering, do you need to raise any capital?
A: DHFL is adequately capitalized to focus on its core business and will continue to do so without coming into the market and raising fresh capital. We have a capital adequacy ratio which is way above the required capital requirement as laid down by the national housing bank. And we don't think that over the next one year we will be coming into the market for raising any fresh capital at all.
Dewan Housing stock price
On March 27, 2015, Dewan Housing Finance Corporation closed at Rs 457.45, down Rs 7.5, or 1.61 percent. The 52-week high of the share was Rs 569.70 and the 52-week low was Rs 214.60.
The company's trailing 12-month (TTM) EPS was at Rs 41.20 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 11.1. The latest book value of the company is Rs 246.59 per share. At current value, the price-to-book value of the company is 1.86.
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