Good debate! Most of us are gaga about housing finance companys' prospects. Lot is being said about the triggers (subsidies, low cost housing, Infra status, tremendous growth visibility).
The thing is that giving loans is one thing and recovery is another thing (should be viewed separately). These housing loans are extremely long term loans. We all are assuming that house being a collateral could be sold easily at 'good' rates to recover money if something goes wrong. A lot is being assumed about the payback power of the people getting 'affordable' houses. Well, there could be a case where houses are in oversupply...so selling becomes difficult (at good rates).in case of defaults. So if the value of collateral falls, the loan might not remain as secure as one may think. One counter point to this might be that if someone defaults after paying regular EMIs for a few years, amount to be paid back becomes smaller than what he originally borrowed. So, even if the value of collateral comes down, we are good. Fair enough!
Another point which samir arora made is the budget for this housing subsidy..it's just 1000 cr. So is that enough? May be more wd be allocated in next few years?
Regarding the space getting crowded due to everyone getting into housing finance, it's being said that the pie is huge to accommodate everybody....is it? How big it is?
Another thing is that if one grows the denominator quickly (loan book), npa visibly look constant. But on absolute basis they are increasing. Whenever growth tapers down, npa numbers could skyrocket.
I am little cautious as everyone is running after these companies as if there is no tomorrow. 7-8 times p/b is very expensive irrespective of growth prospects. So MOS isn't there now.
Roe is good as p/bv is very high. So they keep raising funds at higher p/bv, and their book value goes higher and higher. Now, if we assume that the growth (or quality of growth) falls due to some reasons i have mentioned above, stock wjll correct. Correction would resulf in fundraising at lower prices resulting in lower growth in bv. So this will impact roe. It's all related. It's all looking so good as they are able to raise funds at astronomical valuation.
Food for thought.