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Review By Dilip Davda on April 27, 2017

Housing & Urban Development Corp Ltd, popularly known as “HUDCO” that recently celebrated its 47th anniversary on 25th April 2017 and enjoying “Mini Ratna” status among PSUs is breaking the ice after a gap of 5 years (since April 2012) with a maiden IPO from a PSU. This wholly owned GoI Company is engaged in urban and rural housing as well as infrastructure project financing and has a track record of profit generation and dividend distribution since inception. It enjoys AAA rating for its debt plans from rating agencies like CARE, ICRA and IND Ra to have low cost debts.. Its housing finance loan is classified as social housing, residential real estate and retail finance (branded as Hudco Niwas). Under social housing Hudco is financing economically weaker sections/ lower income groups of the society.

For urban infrastructure finance, Hudco distributes loans relating to water supply, roads and transport (including railways and ports), power, SEZs, gas pipelines, oil terminals, telecom network, market complex, shopping centres, hotels, office buildings, sewerage, drainage, solid waste management etc.

As on 31st of December 2016 it had outstanding loan portfolio of around Rs. 36386 crore out of which around 30.86 per cent was for housing sector and the rest for infrastructure. 89.93 per cent of the total loan was to state governments and their agencies. It is enjoying the NIM of 4.2 per cent plus across the sector. On the said date its Gross NPAs were around 6.8 per cent and Net NPAs were around 1.51 per cent with a provision coverage ratio of 78.98 per cent. With this maiden IPO GoI is diluting 10.19 per cent by way of offer for sale of 204058747 equity share of Rs. 10 each in a price band of Rs. 56-60 per share to mobilize Rs. 1142.73 - 1224.35 crore (on the basis of lower and upper price bands). Issue opens for subscription on 08.05.2017 and will close on 11.05.2017. Minimum application is to be made for 200 shares and in multiples thereon, thereafter. Retail investors and eligible employees will get Rs. 2 discount on the final offer price. Post issue, shares will be listed on BSE and NSE. This being an offer for sale (secondary offer) the equity capital of the company remains same at Rs. 2001.90 crore. Its entire paid up equity has been issued at par since inception till July 2004. BRLM to this offer are IDBI Capital Markets & Securities Ltd, ICICI Securities Ltd, Nomura Financial Advisory and Securities (India) Pvt Ltd and SBI Capital Markets Ltd. Alankit Assignments Ltd is the registrar to the issue.

On performance front, the company has (on a consolidated basis) posted total revenue/net profits of Rs. 2921.34 cr. / Rs. 699.69 cr. (FY13), Rs. 3002.88 cr. / Rs. 733.97 cr. (FY14), Rs. 3427.85 cr. / Rs. 768.32 cr. (FY15) and Rs. 3350.08 cr. / Rs. 809.61 cr. (FY16). For first nine months of the current fiscal ended on 31.12.16 it has earned net profit of Rs. 496.86 cr. on revenue of Rs. 2677.99 cr. and the company hopes to maintain net level and EPS at the previous year’s level. Based on this the asking price is at a P/E of around 14 plus and at a P/BV of around 1.3 plus. It has no listed peer to compare with.

Company is set to play vital role in Pradhan Mantri Awas Yojna (PMAY) under Housing for All (HFA) by 2022 and thus has bright prospects going forward. It will have synergy with National Housing Bank for doing the needful in this segment. With Pan India presence, company is set to explore growth potentials.

On BRLM’s front, the four BRLMs associated with the offer have handled 29 public offers in the past 3 years, out of which 7 offers closed below the offer price on the listing date.

Conclusion: Being PSU offer for just 10 per cent of the total paid up capital and bright prospects for the segment in coming years, investors may consider investment for medium to long term.

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