Stable credit ratings could not save Rakesh Jhunjhunwala's DHFL, shares tumble over 22%; Should you invest?

Despite continuous clarification over a default rumour, this favorite stock of Rakesh Jhunjhunwala is somehow entangled in a controversy and as such has not managed to retain investors' faith. It needs to be noted that, DHFL is itself in shock, looking at the ongoing selling pressure that is hurting its market price. It seems like there is no off button for investors panic mode in this stock price as of now. Today, within just a few hours of opening, DHFL extended its losses by tumbling over 22.30% with an intraday low of Rs 305.35 per piece on BSE. However, at around 11.08 hours, it was trading at 333.60 down by Rs 59.40 or 15.11%. The quantum of decline today is comparatively much better than last week where it shed nearly 60% by more than halving its market price from Rs 611-mark. 
 
Everything seems bleak in DHFL stock price since the time rumours emerged on defaulting in bonds or  repayment in financial obligations.  It's not that the company hasn't tried its best to convince investors. In fact, DHFL has even received stable credit rating outlook after the default rumours on its bond. 

The latest one would be Brickwork Ratings India Private Limited’s rating where right from its secured NCDs to fixed deposits have received a stable outlook with AAA ratings. 

The company has also received re-affirmation of credit ratings from CARE and ICRA. 

The credit rating for DHFL's short and long term borrowings including Fixed Deposits has been reaffirmed as CAREAAA {Outlook: Stable} and CAREAAA {FD}; 

Stable {Triple AAA, Outlook: Stable} and ICRAA1+, indicating a very strong degree of safety regarding timely payment of the Company's financial obligations.

Shutting the rumours, DHFL has been reteriating that the company has neither defaulted on any bonds or repayment of its financial obligations, nor has there been any instance of delay on any repayment of any liability. 

For now this stock has definitely become a nightmare for the ace investor Jhunjhunwala, who owns about 2.76% in DHFL which comes to 8,665,264 equity shares worth Rs 350 crore. 

Jhunjhunwala is seen as an idol to many investors after all breaking the trend in equities and bagging right opportunities on stock exchanges is a child’s game for this Dalal Street king. And if you have invested in DHFL just Jhunjhunwala then this calls for measures whether you should invest or hold or just remove your money from this company. 

Keerthi S analysts at Chola Securities said, “As we had highlighted in our earlier event update on Banking sector, titled- “Bond yields at 4 year high; to push incremental CoF and MTM losses further ”, NBFCs and HFCs will see compression in NIMs, due to rising bond yields and tightening liquidity conditions.” 

That said, Keerthi adds, “DHFL’s strong ALM will help it maintain margins at current levels. Post the panic seen in the equity markets on Friday, the stock is currently trading at P/ABV of 1.0X, P/E of 5.6X FY20E.”

Thereby Keerthi says, “We expect stock to recover, if 2QFY19 results are in line with management’s guidance. Healthy growth in loan book, improving cost of funds on account of change in borrowing mix, improving cost efficiency and stable asset quality paints a positive picture for DHFL, hence we maintain BUY rating and maintain the target price at Rs 743, assigning a P/ABV 2.1X of FY20E.”

On September 21, when the rumours took a toll, the DHFL stock price tumbled to a new low of Rs 246.25 per piece. If we compare it with the target price of Chola, this means DHFL has a potential to gain by over 201% in future ahead. 

Crucially, looking at the outlook, interestingly this tumble in DHFL can become a buying opportunities for new investors to gain the returns of the target price. 

As Jhunjhunwala says, “Emotional investment is a sure way to make loss in stock markets.” Adding further, “Anticipate trend and benefit from it. Traders should go against human nature.”