Wednesday, February 22, 2012

Dhanlaxmi Bank Sold by Dewan Housing, Hours Before Fitch Downgrade

PG Jayakumar, MD & CEO, Dhanlaxmi Bank Ltd

By Staff Reporter:

Dhanlakshmi Bank Ltd (BSE: 532180, NSE: DHANBANK) on Tuesday witnessed significant sells of 4.95 lakh shares by a listed NBFC, Dewan Housing Finance Corporation Ltd, amounting to 0.58% of the total shares in the company.

Offloading by Dewan Housing Finance Corporation (BSE: 511072, NSE: DEWANHOUS) occurred in NSE. Interestingly, there were no identifiable institutional buyers or promoters, as counterparties to both the sells, which means that the massive sale was picked up by the wider market.

Dhanlaxmi Bank, like many other Indian private sector banks, doesn’t technically have a promoter stake or promoter group.

Dhanlaxmi Bank Ltd is India’s smallest listed private sector bank by market capitalization, and second-smallest by way of FY’11 revenue and profits, with only Development Credit Bank (DCB) behind it.

Dewan Housing Finance Corporation Ltd is India’s third largest listed NBFC in the housing finance sector. But it is a distant third from sector leaders like HDFC and LIC Housing Finance, by all metrics like revenue, profits, assets, & market capitalization.

However, by market cap, Dewan Housing is five times larger than Dhanlaxmi Bank. Dewan Housing’s specialization is providing housing loans to those who find it difficult to get it from mainstream banks and home loan companies, and in recent years this sector has been growing very fast in India.

Due to its ambitious makeover plans from being a traditional private sector bank to a new generation private sector bank, as well as due to its relatively small size, Dhanlaxmi Bank has been one of the fastest growing private sector banks, by revenue, in the country during the past few years.

During the last four fiscals, that is between FY’07 end and FY’11 end, Dhanlaxmi Bank had nearly quadrupled its revenues, passing the Rs. 1000 crore revenue mark by FY’11 end. For a while, that is until FY’09, it seemed that profits too would follow suit, with profits more than tripling. But by FY’10, Dhanlaxmi’s profits had halved, and FY’11 too didn’t provide much of a rebound.

Dhanlaxmi Bank is headquartered in the Kerala city of Thrissur, often called the financial capital and cultural capital of Kerala. Apart from Dhanlaxmi, Thrissur is headquarters to the listed South Indian Bank Ltd, the unlisted Catholic Syrian Bank Ltd, and the listed gold loan lender, Manappuram Finance Ltd. The city is also home to numerous Chit Fund Companies of all sizes.

Coming to the fiscal year-to-date, Dhanlaxmi Bank has been struggling, and it hit its nadir recently, when Q3 results were announced. Dhanlaxmi has recorded a net loss of Rs. 36.87 crore, against Rs. 4.35 crore profit in the previous quarter, and Rs. 7.26 crore profit in the corresponding quarter of last fiscal.

Reflecting the market fall of 2011 and its own challenging situation in Q1 & Q2, Dhanlaxmi Bank had fallen from a 52-Week High of Rs. 135.90 in BSE on 25th April to a 52-Week Low of Rs. 42.40 on 28th December, thereby losing nearly 69% in value.

However, along with the recent market recovery and on expectations of a better Q3, Dhanlaxmi Bank had rebounded by more than 65% from its 52-Week Low. The quashing of that hope, and the better prices available now, seems to have been the main sell cue for Dewan Housing Finance.

Dhanlaxmi Bank has been struggling for some time now with other issues too. India’s banking regulator, RBI, had recently asked it to tighten its lending norms, and had also initiated a close monitoring of its activities. The regulatory action is believed to be due to a revolt by a section of bank’s employees who acted as whistleblowers into some affairs of the bank. 

The problems culminated in Dhanlaxmi Bank having a change of guard at the helm, with MD & CEO, Amitabh Chaturvedi resigning on February 6th, due to differences with the Director Board. The new acting MD & CEO, PG Jayakumar, is a veteran with Dhanlaxmi, whereas Chaturvedi was brought in from outside a few years back.

Jayakumar was expected to present his detailed vision for Dhanlaxmi before the Director Board on Tuesday.

Interestingly, Dewan Housing’s sell of Dhanlaxmi Bank has come on the same day that rating agency Fitch had downgraded Dhanlaxmi Bank. In its release on late Tuesday, the agency noted, "Fitch Ratings has downgraded Dhanlaxmi Bank and its Rs 17-crore subordinated debt to long-term 'BBB-(ind)' from 'BBB(ind)' and simultaneously put them on Rating Watch Negative (RWN)." 

Dewan Housing held a 2.35% stake in Dhanlaxmi at the end of Q3. Other major institutional investors in the private sector lender include, India Max Investment Fund, Lotus Global Investment, Rhodes Diversified, Elara India Opportunities Fund, The Master Trust Bank Of Japan, HSBC, College Retirement Equites Fund, The Royal Bank Of Scotland, The Jupiter India Fund, Bessemer India Capital Partners, and BNP Paribas.

It remains to be seen whether other institutional investors too would make partial exits like Dewan Housing Finance, in the coming days. Institutional Investors hold 34.86% stake in Dhanlaxmi, dominated by FIIs at 33.55%, and DIIs at just 1.31%.

On Wednesday, selling pressure was evident with Dhanlaxmi scrip closing trade, 5.15% down.

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