Alert! Rakesh Jhunjhunwala sells shares of this company: Should you follow? Find out

A new trend was witnessed in ace investor Rakesh Jhunjhunwala’s investment strategy in December 2018 (Q3FY19) quarter who has started selling his shares in for NBFC-major Dewan Housing Finance Corporation (DHFL). Interestingly, Jhunjhunwala had decided to increase his holding in DHFL when it wasn't opted by  majority of investors during Q2FY19. However, the situation has changed within three months. So far, five stocks have lost some love of Jhunjhunwala, among which DHFL is takes the lead. As of December 2018, Jhunjhunwala removed a massive 0.73% of his stake in DHFL, taking his holding down to 2.46% with 7,728,500 equity shares worth Rs 169.9 crore. Earlier, Jhunjhunwala held about 3.19% stake in DHFL. 

DHFL’s stock performance is a tragedy for many investors which was fueled during the breakdown of IL&FS crises. While markets have been volatile since September 2018, there were few stocks who lost their glorious days in a blink of an eye which includes DHFL. 

Up till September 19, 2018, DHFL traded near Rs 610-level, but that was the last of good days as the company’s share dropped to even an all-time low of Rs 176.05 in October 2018. That was one of the fastest drop seen in DHFL. In these days, to surprise of many investors, Jhunjhunwala bought more shares in DHFL, increasing his holding to 3.19% in Q2FY19 compared to 2.76% in Q1FY19. 

Looks like, that was one disappointing investment for the ace investor. From DHFL, Jhunjhunwala lost hefty money, as the company plunged by more than 74% in 2018.

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Coming to 2019, with Jhunjhunwala removing his little portion from DHFL, this brings the question where is the stock headed, should you invest? Let’s find out! 

In Edelweiss Financial Services view, there are certain uncertainties clouding key parameters: a) AUM growth is likely to take a back seat (low single digit by FY19 end from 38% in Q2FY19)—sharp moderation in disbursements in H2FY19; b) cautious transition to focus completely on retail & cutting project finance to 5% (17% currently) will adversely impact NIMs, earnings & RoE; c) higher sell-down at lower spreads & funding cost rise will pressurize NIM; and d) volatile asset quality & higher credit cost particularly on project finance exposure. Given heightened associated risks, we are building in sharp moderation in AUM, significant pressure on NIM and rise in delinquencies leading us to cut EPS by 49%/46% for FY19/FY20.

Still, the analysts at Edelweiss have maintained a buy call on DHFL.

On the other hand, Phillip Capital said, "We expect Loan book to slow down significantly over FY18‐20, driven by rising cost of funds. Stiff competition in mortgage finance will limit the transmission of higher cost of funds, leading to a fall in margins. We expect spreads to decline to 0.6%/0.7% in FY19/20 from 1.2% in FY18 and similarly NIMs to fall to 2.16% in FY19 vs. 2.39% in FY18.  At CMP, DHFL trades at 0.8x/0.7x FY19/20 ABVPS of Rs 296/325. We estimate the company to generate an RoE of 11.7%/11.8% in FY19/20, lower than its cost of equity, suggesting that it should trade lower that its book value. We maintain Neutral rating with a target price of Rs 275."