Dhani Loans & Services Ltd IPO

The management team has extensive experience in financial services industry and is headed by Mr. Pinank Shah, who is the whole-time director and Chief Executive Officer. He has been associated with the Indiabulls group for around 10 years. He is ably supported by the vastly experienced second line of management. Mr. Shah headed treasury in Indiabulls Housing Finance Limited (IBHFL) before he joined DLSL as CEO. He has also worked with mortgage lender HDFC Limited for almost 10 years. He is also Group CFO of Dhani Services Limited (parent of DLSL). The company has also appointed Mr. Narendra Jadhav as the new Independent Director, who is currently a Member of Rajya Sabha (nominated by President of India).

DLSL continues to be strongly capitalized with tangible net worth of Rs.3,679 crore as on September 30, 2021, as against Rs.4,136 crore as on March 31, 2020. The company continues to report healthy Capital Adequacy Ratio (CAR) of 62.11% (entirely Tier-I) as against CAR of 58.24% as on March 31, 2021. The company is looking to run down the old loan book of unsecured and secured lending to retail and SME customers which has seen minimal disbursements (~Rs. 1,397 Crore during H1FY22 as against Rs.2,649 crore during FY21 and Rs.7,745 crore during FY20) as the company realigned its business model to transaction finance considering the increased risk in the financial system post COVID.

DLSL is a 100% subsidiary of Dhani Services Limited (DSL). DLSL constitutes 78% of the total assets of DSL at end-FY21 and receives strong capital support from its parent. Further there is common management with high operational linkages as the large part of focus of the group is on the new business of transaction finance. The linkages with Indiabulls group have reduced to some extent due to change in brand name from Indiabulls to Dhani, largely to resonate with the Dhani App.

The company has collectively written off Rs.362 crore during FY20, Rs.184 crore during FY21 and Rs.510 crore during H1FY22 which has reduced the GNPA to Rs.117 crore (3.4% as on September 30, 2021, as against 10.3% as on March 31, 2021. The Slippages (net of recovery) stood at 12.4% during FY21 and 10.7% (annualised) during H1FY22. This has led to elevated credit costs (including write-offs) for last couple of years which has severely impacted the profitability of the company. While the company has indicated that large part of bad assets has been recognized and provided for, any further deterioration in asset quality and corresponding elevated credit costs will remain key sensitivity in near term.

DLSL reported a sharp decline in profitability in past couple of years on account of reduction in size of loan book and corresponding reduction in net interest income, higher operational costs, income reversals due to high NPA and write-offs and elevated provisioning and write-offs. It reported loss of Rs.54.1 crore during FY21 (FY20: PAT of Rs.54.25 crore and FY19: PAT of Rs.400.19 crore) and further loss of Rs.270.83 crore during H1FY22. The company saw reduction in its interest income during H1FY22 to Rs.170.22 crore (-66% y-o-y) on account of reduction in loan portfolio, reversals in interest income on account of NPA recognition and 13% of loan portfolio yielding zero percent on account of new business model.

The company’s gross loan portfolio has steadily reduced to Rs.3,456 crore as on September 30, 2021 (March 31, 2021: Rs.4,160 crore and March 31, 2020: Rs.4,709 crore). The company has indicated that it will let the old portfolio of interest-bearing lending to run down (~Rs.3,000 crore of portfolio). The remaining portfolio is recently generated short tenor, zero interest bearing portfolio under new business model. On overall basis, 80% of the portfolio consists of unsecured lending and 20% of the portfolio is secured (LAP). The company has indicated that going forward the portfolio will be completely unsecured as new portfolio of transaction finance is completely unsecured.