CNBC-TV18's Varinder Bansal got Up, Close & Personal with the Chairman and Managing Director of DHFL – Kapil Wadhawan and asked him about all the aspects of their businesses and the outlook going forward.
The DHFL stock has risen a 125 percent so far in 2017.
Wadhawan is very upbeat on the outlook for the business going forward. He said their assets under management (AUMs) would touch nearly Rs 2 lakh crore and the return on equity would be over 20 percent by 2020.
He is also confident of the networth of the company being around Rs 10,000 crore by FY18-end.
Below is the verbatim transcript of the interview.
Q: How much growth do you envisage? Your lending book or the assets under management (AUM) could be 88,000-89,000 crore if I am not wrong at this point in time, in next two-three years?
A: In the next three years - 20 percent growth which we have envisaged, we are looking at getting to a compounded cumulative AUM of close to 2 lakh crore. So yes, we would like to obviously keep certain surprises as well for the market. We don’t want to be too overoptimistic on the numbers
Q: You think 2 lakh crore in next three years is possible?
A: It is the stated objective for DHFL.
Q: What about return on equities (ROE) because a lot of analysts talk and I am sure you may not like it but how can ROEs improve from here, is capital allocation a problem?
A: Our net worth by the end of this financial year will be closer to Rs 10,000 crore. In the last year, we infused Rs 2,000 crore of non-dilutive capital. So as a capital hungry business, which obviously is growing quite rapidly, we have done infusions in the past of capital but this is the first time that we have infused capital, which is extremely non-dilutive for the shareholders.
Q: That is very important to understand because your deal with the Wadhawan Global Capital (WGC) putting in Rs 2,000 crore may not be well understood by the markets, elabourate a bit on that?
A: WGC was formed a couple of years ago and the idea was to consolidate the holding of the family under the WGC Umbrella for all the financial services that we do.
Three years back we got into the life insurance business in partnership with Prudential of US and surely we started off on an extremely positive footing. The year we entered into that partnership, we started turning profitable. DHFL has a very strong captive business place plus management change, a new perspective, obviously led for that business to become not just profitable but also is being recognised today as one of the most aggressive life insurance companies in the country. So DHFL’s entry point was – with a very small capital investment.
We made a small capital investment of about Rs 35 crore three years ago and we recognised that yes there is enough value which we have created in the last three years for DHFL to now capitalise on that investment.
So WGC pitched in, went out, borrowed money and obviously in a very tax efficient way, we infused the capital in DHFL. So that led to some net worth moving up, the return on equity coming down a bit but I guess with that infusion we took away the capital raising issue because we were pretty conscious that DHFL – the market cap is not good enough for me to go out and dilute further in the market. So we got the capital in and we are taking care of DHFL’s capital requirement for the next two years or so.
Q: So you are saying no capital requirement for Dewan Housing for the next two years?
Q: How much ROEs you think could improve for Dewan Housing when no capital requirement in the next two years?
A: I think we should be over 20 percent by 2020.
Q: The bigger thing what I am taking away is that by 2020 the AUM could go to 2 lakh crore and the return on equity could be over 20 percent.
Q: People have perception issues regarding Dewan Housing. Six months back, it used to trade at price to book value of one time, now things have started improving -- two times price to book, whether it was auditors issue or whether it is the old family thing which is 10-15 years back, whether it is investment in the real estate, please help us to clarify if you think any of this is even truth or people have to just make words for the sake of talking?
A: This entire thing about perception makes me laugh because on one hand you have a formidable business that we are running on the ground, you have close to 100,000 crore of AUM, which has been built from 2009. We have done a few acquisitions in the market, we deal with more than 25 banks and financial institutions, we have a AAA (triple A) rating from the rating agencies.
Q: Where do all these things come from?
A: Honestly I would like to understand from people who talk about perception, what perception is because who is that perception creator in the market? If all that is true, if what we are doing on the ground is true, if we have multiple regulators regulating us which is true then I guess we have learnt to take this in our stride as well. If it is simply a question of getting rewarded on the marketcap, as I said before, the market will reward us once they see the effort that has gone into building this large retail financial services franchise.
Q: I am sure you must have discussed with your bankers, within the company itself that there is a lot of difference in terms of value the market gives you compared to other housing financing companies or do you think that there is nothing?
A: I believe -- yes on a relative basis, you are right. There may be some differential but I have always believed that over time, the market responds. The market starts respecting.
Q: You took some steps in the past, to better things which may not be liked by the market, like change of auditors etc, right?
A: I guess these are things which -- as a large financial institution rather than just a company you have to keep making the right noises with the right decisions on governance etc and I guess it is a pretty routine thing for us. So to me, I will not give this entire perception issue much credence because it has no roots and also whatever roots are there, I would love to meet the people who have certain perception issues.
Q: My last thing on this, investment into real estate and one of the properties in Bandra-Kurla Complex (BKC), what is your stand on that because in last time we heard, people were talking about that you may lease it, sell it which will improve the capital for the company?
A: Firstly, I think this is again one small perception which we have time and again put forth in front of the investors and the larger investment community to say that one this is not blocked capital. This is capital work in progress, the asset is on the ground.
Q: That money used in Dewan Housing will not give better ROE?
A: At the end of the day, it is all about how do you go out and invest that money for generating that 2-2.5 percent return. So we are already booking cost on that money that we have raised and it is a question of how do you start realising some of the gains out of either the sales of that property or leasing of that property.
Q: That will happen soon, right?
A: That will happen soon.
Q: Whether it is lease or sell, that will happen soon?
A: Yes.For full interview, watch accompanying videos...