This is like asking who is Seeta after listening to Ramayana. CANFIN & PNBHF !!
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Beware Of “Lakh Crore Ki Kahani” Stocks Hype: Samir Arora & Ramesh Damani
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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.
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Mridul I’m curious to know more about this concept. How can high prices affect ROEs?
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Sector looks very over heated, with zero/negative MoS left in these stocks. They might be great momentum plays, but its a good idea to accept what you are doing (short term momentum based speculation), rather than long term value investing by holding these stocks at these valuations.
Even PSU banks had a dream run in 2003-2008 as their corporate loan book disbursement grew, but it all came crashing down after disbursement rates slowed…
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In lending business, recovery is as important as lending. As you said, psu banks had a great run during 2003-07… but you can eventually see the quality of loan book. When lenders compete to give loans (oversupply of loans), things are eventually going to go soar. My opinion is that housing finance being a loan with collateral is considered safe, but as with anything that is in oversupply, prices fall. So quality of loan book is THE most important metric than plain vanila growth numbers. Disbursement is what is being emphasised at and all lenders are giving lofty projections. But what’s the key is who they are lending to. Can fin is considered very safe as most of its book consisted of salaried class. But with growing competition even they are diversifying into self employed segment. Competition in lending is good for borrowers but not lenders…stress would be seen after some time as more and more companies enter this housing finance segment aggressively.
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Agreed, and all these valuations are on the basis of 10-30% growth (depending on the lender and entereing P/BV) to justify multiples slight higher than current ones.
- What is the MoS in these lenders being able to maintain their moat, AND the potential market growing at this rate?
- What multiples do these companies revert to in absence of either of those factors?
- What stops any enterprising financial services person from starting their own Housing Finance Co. if investors are willing to fund it at ~4x P/BV?
I personally know of several private housing lenders that have a large amount of capital and are led by smart and conservative management and investors. What happens to these listed companies trading at 4-14x P/BV when these firms encroach on their already halfway penetrated market? How long can these listed companies continue to grow at these rates?
Disc. May/may not initiate a short position in HFCs in the near future
P.S. I like how no ‘value’ has been quantified for these HFC’s with the only reason being “lakho crore ki kahani” (no need to pay attention to valuation if you can find another bidder!) said by a stockbroker…
“This time is different”
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Too many people are skeptical about the growth prospects of HFCs which itself is a good sign. There is a tailwind and the Govt is helping a lot. There will be disappointments on the way but to question growth in the light of overwhelming evidence in a market like India is naivety. In a bull market and with some companies managing their NPAs very well there is no point in over-analysing and doubting everything. Everyone has their own opinon of course
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Is this discussion of which stock will mark the 10k level in next 3 or 4 years relevant? As investors we should focus on discussing the fundamentals of these companies, Housing finance sector and other things which will impact the performance of these companies. Stock price movement is ultimately dependent on these and many other factors.
Just a suggestion…
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I am not sure about the forum policy regarding stock price discussions but one of the objectives of investing is to finally profit from it. So I do think it is relevant to discuss this but may not be in great detail. My only concern about the comments from that video was that Mr. Basant was talking about market euphoria where price reaches unrealistic levels and why investors should be aware of it.
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Yeah, the ‘widespread skepticism’ is indeed seen in the huge run up in prices, or P/BV multiples! Or maybe the intrinsic value has has increased manyfold more than the run up in prices due to stock market’s clairvoyant investors’ predicitions, or maybe it’s Modi’s speeches promising housing for all (politicians always deliver… right?!) that have truly increased the earning power of these businesses…
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A few months back, Micro-Finance was the greatest thing that happened to India. Now it is new entrants in Housing Finance. Wait for two quarters and a new obsession may emerge.
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Demonetisation dealt a severe body blow to that segment , RBI couldnt even let a full KYC compliant sector take two installments in old notes , Poor ladies (the main borrowers as we largely follow the grameen model in MFI ) didnt know what hit them …they should run a business , stand in line or cook etc
net net it affected the eco and the credit culture
What did MFI sector do wrong …?
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I don’t know if it killed or was a severe blow. Time will tell. I don’t hold any but feel that couple of them are a perfect case to buy and hold with confidence. Especially the ones holding small bank licences.
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i agree , mistakenly used too harsh a word …thus amended !
the ones you mention continue on my watch list and will buy again …somewhere along the line …once the sentiment of loan waivers , full provisioning etc in done
That is always the case in my opinion. Stocks are often trading at >+10% or <-10% their fair value … What the markets look for is earnings predictability and high quality business which can deliver for some years if not quarters …In my opinion, this is present in case of both Can fin homes and PNB housing… Currently the sentiment is also sky high which is helping these stocks to trade at exhorbitant levels… Generally there is one reality check every 12-15 months for the markets when things see to come back to their fair value range… Till then, its time to wait patiently on the sidelines and look for what the next opportunities will be and answer the question "what will i buy if markets fall and most of the stocks correct ? "
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June 17 Investor Presentation https://www.pnbhousing.com/wp-content/uploads/2017/06/PNB-Housing-Finance-Investor-Presentation_June-2017.pdf
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The most attractively packaged AR of FY17 
Loan asset growth of 42%GNPA at 0.22%
71% exposure to housing loans.
Deposits contribution at 26% (as a source of funding)
Networth growth from 621 cr (fy13) to 5577 cr (fy17)
Loans outstanding growth from 6621 cr (fy13) to 38531 cr (fy17)
C/I ratio at 22.43%
RoE at 14.92%
In the year ahead, our ambition is to add 23 new branches (16 were added in fy16), 17 outreach locations and 3 fully capacitated credit decision hubs, thus creating additional service touch points for our customers.
However, extension of our branch network will be a cautious one, to ensure efcient service delivery. We do not believe in chasing market share wherein we could expose ourselves to issues like credit risk, and poor quality portfolio.
High volume growth of the business and geographical expansion, is often coupled with increase in cost to income ratio (CIR). We have been cognizant of this phenomenon and have laid down
stringent benchmarks to keep the costs in control.
As on December 31st, 2016, the total housing credit outstanding in India stood at around INR 13.7 trillion and is expected to grow at 18-20% in FY2017-18. It is interesting to note that the mortgage loan proved to be the single largest and best performing retail asset in the lending
industry which could withstand the impact of demonetisation as well.
The share of HFCs and NBFCs in the overall mortgage nance market remained steady at 37% as on December 31st, 2017, with commercial banks accounting for the remaining 63%.
Looking ahead, an array of mixed factors will determine as to when the industry
will regain its momentum. For the moment, the current situation can be
titled as a ‘consolidation phase’.
Despite a decent performance in the year gone by, the mortgage market in India remained underpenetrated with mortgage-to-GDP ratio of around 9%, which is far lower in comparison to the 15%-30% ratio of other peer developing economies, and 80+% for some of the developed ones.
There has been a steady increase of new entrants in the housing nance sector and this increase in competition may lead to price wars, loan transfers and drop in portfolio quality.
The spread on loans over the cost of borrowings for the year was 2.21% per
annum as against 2.18% per annum in the previous year.
Company’s capital adequacy ratio as at March 31, 2017 was 21.62%. The capital adequacy on account of Tier I capital was 16.48% and the capital adequacy on account of the tier II capital was
5.14%.
The Company shall refrain from price wars and focus on the quality of products and services for cementing relationships with its customers.
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Bse website doesn’t show AR , I not received AR, can tell source where AR is available