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HUDCO IPO Opens Today: Here’s All You Need To Know

HUDCO launches IPO at price band of Rs 56-60.

(Source: HUDCO website)
(Source: HUDCO website)

Housing and Urban Development Corporation Ltd. (HUDCO) is the first government-owned company to go public in five years. It is also the first non-banking financial company to launch an initial public offering (IPO) in 2017.

The government is looking to raise close to Rs 1,224 crore by divesting a little more than 10 percent stake in the company. On offer are 20.4 crore shares at a price band of Rs 56-60 apiece. Retail investors will also get a discount of Rs 2.

The company is being valued at Rs 12,000 crore.

Business Model?

Ninety percent of the company's loan exposure is to the government, where risk of default is near zero. Its last loan disbursement to the private sector was in 2013 and the company is in no hurry to lend to private companies, said Director-Finance Rajesh Kumar Arora in an interview to BloombergQuint. Part of the reason could be the non-performing assets spread. Nearly 90 percent of its 6.8 percent gross non-performing asset portfolio belongs to the private sector.

HUDCO IPO Opens Today: Here’s All You Need To Know

The company has traditionally lent more to urban infrastructure projects, and has been increasing its presence in the home loans space. HUDCO’s loan portfolio has also increased to Rs 36,386 crore for the nine months ended December 2016 from Rs 30,012 crore in financial year 2013-14.

HUDCO IPO Opens Today: Here’s All You Need To Know

Financial Highlights

HUDCO's net worth for the nine-months ended December, 2016 was Rs 8,968 crore according to its red herring prospectus. This translates to a book value of Rs 44.8 per share.

Total revenue grew at a compounded annual growth rate of 5 percent over five years to Rs 3,350 crore at the end of the financial year 2015-16. Net profit also grew at an average of 7 percent over five years to Rs 810 crore at the end of FY16.

Total revenue for the first nine months of the last financial year stood at Rs 2,678 crore, while the bottomline was Rs 496 crore.

HUDCO's price-to-book value is 1.3 times its FY16 earnings, at the upper end of the price band of Rs 60.

Other Highlights

  • The company maintains a provision coverage ratio of 79 percent of its gross non-performing asset portfolio.
  • Net interest margins have remained stable but return on equity has been falling over the last four financial years.
  • The NBFC has high capital adequacy ratio of 63.7 percent as compared to the regulatory requirement of 12 percent.
  • There are no direct listed peers, as HUDCO does wholesale lending while other NBFCs such as HDFC Ltd., LIC Housing Finance Ltd. and Indiabulls Housing Ltd. are into retail.
HUDCO IPO Opens Today: Here’s All You Need To Know

Brokerage Verdict

Antique Stock Broking, IIFL and LKP Securities have a ‘subscribe’ rating on HUDCO’s IPO.

It is attractively priced considering its long-standing relationships with state governments, comfortable net interest margins and debt position, ability to raise funds from a wide variety of institutional & non-institutional sources, healthy asset quality and prudent approach.
LKP Securities Report
Given the reasonable visibility for steady asset growth and better return ratios, the IPO valuation at 1.4-1.5 times 9-month FY17 price to adjusted book value seems attractive.
IIFL Report
At the upper price band of Rs 60 per share, the stock trades at 1 time FY19 price-to-book. While comparison with housing finance companies is absolutely unwarranted due to the fact that HUDCO doesn’t lend directly to the home buyer, IPO valuations leave some upside for investors.
Antique Stock Broking Report