Housing and Urban Development Corporation Ltd (HUDCO), a fully-owned Indian government company, has got a reasonably good response to its Rs 1,200-crore initial public offering (IPO) that opened on Monday, May 8. The government is offloading 20.4 crore equity shares (20,40,58,747 to be precise) for which the price band has been fixed as Rs 56-60 per equity share. In percentage terms, the Indian government's stake dilution is 10.19 percent.
Information available on the National Stock Exchange (NSE) showed that the issue was subscribed 0.20 percent till about 1.30 pm. Bids for 4,14,78,000 shares were received till that time, of which bids for 3,13,44,200 shares were at the cut-off price, according to the NSE update.
Four brokerages have given a positive view on the IPO.
1. Geojit Financial Services Ltd.
Good track record, impeccable management credentials
In a note, Geojit Financial Services said the company has a strong track record of growth and profitability. "The company has been profitable since its inception," it said.
The Miniratna (Category-I Public Sector Enterprise) company is governed by a team of able professionals, led by chairman Ravi Kanth Medithi.
"The company has a highly skilled board of directors. Currently, HUDCO has ten directors on its board, including five independent directors. Members of the senior management team have an average of 23 years' experience in the finance industry and have been associated with Hudco for an average of 21 years," Geojit Financial said.
2. Centrum Broking
Low growth but attractive valuation
Centrum Broking said that the IPO is worth it, given the valuation. At the higher end of the price band of Rs 60, the stock is valued at 1.6x its FY16 adjusted book value (ABV) and 1.4x its 9MFY17 ABV. The valuation appears attractive, given the good fundamentals – 2.3% RoA, ~4% NIM and 64% capital adequacy ratio (CAR) for FY16 along with the highest credit rating of 'AAA', which helps to source funding at lower cost, the brokerage said.
The push for planned urbanisation under the "Smart City" project is expected to boost Hudco's prospects. "Going ahead, with Government's focus on improving urban infrastructure along with initiatives such as 'Housing for All by 2020', '100 Smart Cities', etc., HUDCO has good opportunity for growth," Centrum Broking said.
3. Motilal Oswal Securities
Govt housing schemes a big advantage
Housing schemes of the government such as Pradhan Mantri Awas Yojana (PMAY); DAY-NULM (Deendayal Antyodaya Yojana-National Urban Livelihoods Mission) and JNNURM (Jawaharlal Nehru National Urban Renewal Mission) will drive growth for the company.
"Being a market maker of sorts, HUDCO has developed strong relationships with various state governments and their agencies," Motilal Oswal Securities said.
Demand for housing arising out of rapid urbanisation is another theme that will work for Hudco. "India's urban population increased from 222 mn in 1990 to 410 mn in 2014 and is expected to reach 814 mn by 2050. This migration to urban India is leading to a shortage of housing and according to government data, the shortage in urban housing between FY 2012 and FY 2017 was estimated at close to 19 mn dwellings," the brokerage said.
4. Angel Broking
Business model is unique
"HUDCO has a unique blend of business with focus on financing both housing and urban infrastructure, which has vast untapped opportunity in India. Focus on govt. sponsored projects and ability to raise funds at a competitive price provides earnings visibility for many years. At the issue price band of Rs 56-60, the stock is offered at 1.25x-1.35x its 9MFY2017 BV, which we believe is reasonably priced, and hence, recommend SUBSCRIBE to the issue," the brokerage said.
Highlights of the issue and the company's performance (courtesy: Motilal Oswal Securities)
The company provides long term finance for construction of houses and to undertake housing and urban infrastructure development programmes.
Hudco offers consultancy services, promotes research and studies and help propagate use of local building materials, cost-effective and innovative construction technologies.
Its net profit for the last three years has risen consistently, from Rs 734 crore in 2013-14, to Rs 768 crore in 2014-15 and Rs 810 crore in 2015-16.
At the upper end of the price band of Rs 60, the company is valued at 1.4x FY16 P/B.
Gross NPAs were at around 6.8 percent and net NPAs at 1.51 percent.
The company is set to play a vital role in Pradhan Mantri Awas Yojna (PMAY) under Housing for All (HFA) by 2022 and thus has bright prospects going forward.
The migration from rural to urban India is leading to a shortage of housing and according to government data, the shortage in urban housing between FY 2012 and FY 2017 was estimated at close to 19 million dwellings.
To reduce this shortage, the government has launched various schemes. Under the 'Housing for All' scheme, the government plans to build 20 million urban homes and 30 million rural homes by 2022.
The credit-linked scheme under the urban programme, which offers 6.5 percent interest rate subsidy, has already started gaining traction and HUDCO is playing the key role of central nodal agency.
Hudco's outstanding loans (assets under management) stood at Rs 35,664.9 crore in FY16.
