Piramal DHFL merger news: Strategic rationale, deal value, synergies and more

Piramal DHFL merger news: Strategic rationale, deal value, synergies and more

Last updated: 29 Sep, 2021 | 02:59 pm

Piramal DHFL merger news: Strategic rationale, deal value, synergies and more

Piramal Group has completed the acquisition of Dewan Housing Finance (DHFL) for a total consideration of Rs 38,000 crore. Here are the details of the deal:

Piramal DHFL deal

  • Piramal Capital and Housing Finance Ltd (PCHFL) will merge with DHFL. Following the completion of all formalities, DHFL will be delisted from the Indian Stock Exchange and its assets will be transferred to the merged entity. 
  • The resultant entity will be named PCHFL. Most of the DHFL creditors are recovering nearly 46% through successful completion of the resolution process
  • Notably, DHFL is the first financial services firm to be resolved under a special window of the IBC (Insolvency and bankruptcy Code). 
  • The creditors of DHFL that include FD holders would recover an aggregate amount of around ₹38,000 crore from the resolution process of DHFL. This amount consists of Rs 34,250 crore to be paid by Piramal Capital and Housing Finance as a combination of cash and NCDs and an amount of around Rs 3,800 crore, which is the entitlement of creditors, from the cash balance available with DHFL.

Piramal DHFL news: How big will the merged entity be?

The merged entity combines Piramal’s financial strength, and institutional credibility with DHFL’s geographic footprint and distribution network of 301 branches and 2,338 employees catering to ~1 million lifetime customers across 24 states - making it one of the leading housing finance companies in the country. The table below shows what changes for Piramal post the mega deal.

Piramal acquisition: Synergies from the deal

  • Piramal said that this acquisition will help the company to become a well-diversified retail focussed lender. The acquisition is a major step to transform its financial services business. 
  • This transaction will not only grow the retail loan book to ~5 times, but also lead to a significant diversification of the overall loan book. This paves the way for achieving nearly 50:50 retail wholesale mix in the near-term. The company will leverage the “phygital” lending platform driven by Machine Learning (ML) and Artificial Intelligence (AI), including the new mobile app. 

This deal will help Piramal to take advantage of the government’s thrust on affordable housing. India’s household credit to GDP at 12% is lowest among sizable economies of the world. This indicates a huge untapped market potential for the housing finance business in India . With a major push from the Government of India towards affordable housing, the share of credit active customers in Tier 2 and Tier 3 cities/towns is significantly increasing over the last few years, noted Piramal. Going forward, the company aims to become one of the major players in the ‘Bharat Market.’

  • As shown in the above table, there has been a significant increase in the share of borrowers from the ‘Bharat’ market. The share of credit active consumers (number of loan accounts) belonging to Metro (Others), Urban and Semi-urban has risen from 40% in 2010 to 53% in 2020. 

Piramal DHFL merger: Management commentary

The acquisition is a major step in the company’s aim to become a dominant player in the fast-growing affordable housing segment. Over the last two years, Piramal Group has built its technology platform, with advanced analytics engine and AI/ML capabilities. “This acquisition allows us to implement these technologies across a much larger base of customers. The new merged entity is poised to be at the forefront of the digital-first retail lending market in India,” Ajay Piramal said.