Q&A: Dewan Housing Finance Ltd (DHFL), Management Analysis, Sources of Financial Information

Modified: 01-Jul-20

The current article in this series provides responses related to:

  • Reader’s (Krishnakumar) inputs about Dewan Housing Finance Limited
  • Companies paying dividends from debt
  • When managements prefer to hold cash instead of giving dividends
  • How to judge management of any company?
  • Should we deduct interest payment while calculating CFO?
  • Sources to read financial information


Dewan Housing Finance Limited

Dear Dr. Vijay,

I have learnt a lot about analyzing companies by reading your blog. Thank you very much.

I could not find your analysis on any NBFC/Bank in you blog. Can you please give your views on Dewan Housing Finance Limited?

  • Market Cap = ₹6,418 Crore



  • 10 year sales growth = 43%
  • 10 year profit growth = 36%
  • Zero annual drops in sales/profit in last 10 years, i.e., the company results are not cyclical even though it is lending for a business which is cyclical (real estate).
  • P/E ratio = 9.5
  • P/B Ratio = 1.29
  • P/E * P/B = 12.255 < 22.5, providing a good margin of safety
  • Credit rating has been increased last year to AAA.
  • Current ratio = 4.85
  • Has paid dividend on every year since 2000.
  • Total salary of all Directors including Managing Director (FY-2015) = ₹2.32 crore out of net profit of ₹621 crore



  • Frequent equity dilution – Equity capital increased from 67.79 March 2006 to 145.68 in March 2015; All Housing finance companies seem to be doing this.
  • Promoter holding < 35%
  • FII Holding > 25%
  • Return on capital employed has decreased from 22% in 2010 to 15% in 2010 according to valueresearchonline data.
  • Gross NPA = 0.95%, Net NPA = 0.68% has been increasing for past 3 years.
  • Dividend payout ratio has been decreasing.
  • Interest coverage ratio has always been just around 1.2-1.3.
  • Tax rate for past 5 years has been increasing from 24% to 34% in past 5 years.

Regarding NPA, I find that other housing finance companies like Gruh Finance, HDFC and Can Finance have much lower numbers. However DHFL’s NPA is lesser than that of banks. I feel that NPA is less relevant in case of housing finance since they can get most of the money owed by selling off the property, unlike banks which may be lending to corporates. Please correct me if I am wrong.

I find that cash flow statement for Financial institutions are very different from other companies and that their CFO is negative, hence PAT and CFO are not matching.

Same is the case with Debt to equity which is at 10.54.

I could not understand how tax rate for company in FY2015 is 34% while corporate tax rate is 30%. Why would the company pay extra tax?

From FY15 Annual report, I found that the company has issued Zero coupon debentures worth ₹191 crore which is increase from ₹49 crore in FY14. How is the interest cost calculated for such debentures every year? Will there be a huge expense on premium when the debentures are redeemed?

Thank you,



Author’s Response:

Thanks for writing to me!

I appreciate the time & effort put by you in the analysis of Dewan Housing Finance Limited. It clearly shows the amount of hard work that you have done.

Unfortunately, I do not analyse Bank/FI stocks on the blog. I have already communicated about it on the page above as P.S.

“4) Currently, I do not provide analysis of companies of following sectors, therefore, I request readers not to ask queries for companies in these sectors: IT/ITeS: I do not understand this sector, Banking/FI/NBFC: the data needed for their analysis like asset-liability mismatch, funding profile, CAR & its breakup, NPA movement, borrower-wise concentration etc. are not available on open sources like moneycontrol, screener etc.). “

Moreover, we believe that the financial position of a Bank/NBFC can not be assessed accurately using its reported financials:

Can we Assess a Bank’s Financial Position from its Reported Financials?

I would not be able to provide my inputs on Dewan Housing Finance Limited currently.

However, I appreciate the effort that you have put and would keep note of your analysis on Dewan Housing Finance Limited. If any time, I start analysing Bank/FIs for putting their analysis on the blog, then I would analyse Dewan Housing Finance Limited and respond to your this query again.

Currently, I would suggest that you go ahead with your analysis.



Companies paying dividends from debt

Hello Sir,

Superb detailed analysis.

Analysis: KRBL Limited (“India Gate” Basmati Rice)

As you said about the company paying dividends with borrowed money, is extremely correct. I too have the same view. The company should ideally stop paying dividends and instead pay off the debt over the years. This would have increased the profits and hence shareholder value.

Running only behind growth can be disastrous. It is a double edged sword. Cash is always THE king.

Let me know your views.

Author’s Response:

Hi ,

Thanks for your inputs.

I have provided my views regarding companies (Ahmednagar Forgings Limited and Amtek India Limited) where growth is associated with increasing debt in the following articles:

Also Read: Q&A Analysis: Ahmednagar Forgings Limited

Also Read: Q&A Analysis: Amtek India Limited

You may refer to those articles to see the impact such business models have on financials of any company.




When managements prefer to hold cash instead of giving dividends

Thanks Sir for detailed analysis of Hindustan Media Ventures Limited. How do you judge the management team as they have been low on dividend payment terms and holding cash for long time?

Analysis: Hindustan Media Ventures Limited

Author’s Response:

Thanks for writing to me!

An investor needs to take this decision on her own whether she would want to partner with a management. Some of the aspects have been highlighted in the above article.

You may read more about management analysis of any company in the following article:

How to do Management Analysis of a Company

All the best for your investing journey!



How to judge management of any company?

Hello Mr. Vijay,

I have read your detailed analysis on Fine Yarn maker Ambika Cotton Mills Limited, on the same lines I found another company names Century Enka Limited (A BK Birla Group Company).

It manufactures Nylon Yarn and has very good margin too. Based on your inputs on how to financially analyse the stock, I found this company to generate free cash flow, low debt and healthy dividend.

I would like to know of how to judge the management of the company and also if the lower crude oil prices will affect the company’s input cost.


Author’s Response:


Thanks for writing to me!

You may read the following article to get an idea of assessment of management of a company:

How to do Management Analysis of a Company

You may read the annual report of the company to get an idea about how much of its raw material is crude oil derivatives and further study the impact of changes in crude oil prices on its raw material costs in past year. This exercise would help you judge the impact of crude oil prices on company’s input costs.

All the best for your investing journey!



Should we deduct interest payment while calculating CFO?

Hi Dr. Vijay,

I learnt from your blog that we should always look Net profit along with CFO.

While looking at calculation of Cash flow from Operations in annual reports, I observe that, interest paid and depreciation are added into the net CFO. I find that CFO in some high debt companies like Suzlon energy is much greater than net profit since interest is included in CFO and not in net profit. This could seriously mislead our analysis.

Shouldn’t we remove these from CFO when we are comparing 10 year cPAT and cCFO? – Or, shall we compare (cCFO + tax paid) with cEBITDA.



Author’s Response:

Thanks for writing to me!

I am happy that you are doing your own stock analysis and are envisaging different scenarios/ratios/formulas which as per you represent the correct picture of financial position of the company.

I congratulate you for questioning the set mindset of company analysis.

Krishna, the annual reports are prepared in a standard format as per the accounting rules of any country. Rules dictate that interest should be shown as CFF and not CFO, that’s why it is added back in net profit to arrive at CFO.

Read: Understanding Cash Flow from Operations (CFO)

However, the analysis in finance by the investor is not bound by any rules. You may use any formula as you deem fit for gauging the correct situation of any company.

I would suggest that you try analysing companies on the tweaked formulas presented by you and take a call whether these new formulas are able to present the actual financial strength or weakness of the company, better than rule bound CFO.

All the best for your investing journey!



Sources to read financial information

Hi Vijay Malik,

I really admire and follow your articles, especially step-by-step analysis series.

I have two questions. Could you please clarify that?

1. Where do you read the financial statements in newspaper or screener sites (of course I know you recommend screener.in)? Just want to know.

2. As Buffett style, we should invest in the companies that we are aware about the business. Where can I learn about the business? I see only stock recommendations in internet. Where can I get true knowledge about business and evaluate them? Say, how I can read business like banks, cements? Where can I read to understand these businesses?

Author’s Response:


Thanks for your feedback & appreciation! We am happy that you found the articles useful!

1) We read financial statements on BSE company filings, Annual reports, screener and currently moneycontrol

2) You may read about how to learn new businesses, in the following article:

How to Analyze Companies in Industries new to you?






  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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