BSE See NSE See 28,458.40
115.39 (0.41%)

HUDCO – Tax Free Bonds

By Vidrum Mehta | 12/28/2012 8:39 AM Friday


Recently, many companies have been raising funds from the market by issuing tax-free bonds. Three companies have already come out with their bonds, viz. Rural Electrification Corporation (REC), which tapped the market in early December 2012, while the issues of Power Finance Corporation (PFCL) and India Infrastructure Finance Company (IIFCL) are currently open. Joining the bandwagon now is Housing and Urban Development Corporation (HUDCO). 

In the Union Budget 2012, the government allowed some companies to raise funds up to an aggregate of Rs 60,000 crore by issuing such bonds. The move came in light of the fact that the government wished the retail investors to participate in India's infrastructural development.

About The Issue

HUDCO intends to raise funds around Rs 750 crore with an option to retain over-subscription of an additional Rs 4250 crore. The funds raised would be used by the company for lending purposes, for its working capital requirement, as well as for other operational requirements like debt servicing.

The issue will open on Jan 9, 2012 and is expected to close on Jan 22, 2012. The face value of the bonds is Rs 1000, and it has a minimum application value of Rs 5000 (5 bonds, each of FV Rs 1000). Thereafter, the application can be made in multiples of one bond (i.e. Rs 1000).

HUDCO is offering two series for investors to choose from. Series 1 is for a tenure of 10 years, with a coupon rate of 7.84%, while Series 2 is for a tenure of 15 years, with a coupon rate of 8.01%. The interest on both the options would be paid annually. The bonds would be listed only on the National Stock Exchange (NSE).

The company is offering attractive rates for different tenure as compared to other recent issues. For instance, for tenures of 10 and 15 years, REC offered coupon rates of 7.72% and 7.88% respectively, while PFC offered 7.69% and 7.86% for similar periods. IIFCL offered rates of 7.69%, 7.86% and 7.9% for tenures of 10, 15 and 20 years respectively. HUDCO is offering coupon rates that are higher by around 15 basis points for both the tenure. This will result in higher interest income in the hands of the retail individuals.

About The Company

HUDCO was established way back in 1970 and is a public sector entity engaged in financing housing and urban infrastructure projects throughout India. On the financial front, the company has posted good numbers. For FY2012, the revenue from its operations increased by 21% to Rs 2738 and the net profit grew by 14.54% to Rs 630 crore on a YoY basis. The interest coverage ratio for FY2012 stands at 1.58x, which we believe is adequate to pay off its regular interest payments. Going forward, we believe that the company would be able to pay interest to its investors in a timely manner.


The Indian economy is growing at good rate. As the country grows, the interest rates tend to reduce, which is evident from the fact that developed nations have very low interest rates. Hence, this would be a good investment bet for those investors those who wish to park funds for a long-term horizon.

The issue is more attractive to investors who come under the higher tax brackets (30.9%). Thus, an investor gets an effective rate of 11.35% and 11.59% for tenures of 10 and 15 years respectively. For individuals falling under lower tax brackets, the benefit tends to be lesser as the fixed deposit rates for a tenure of around 5 years are in the range of 8.5%-9% (pre-tax).

One should note that even though the bonds would be listed on the NSE, the volumes on the counter might be low and hence liquidity could be an issue. Hence, investors those who wish to invest for a longer-term horizon should go with the same. Also note that there will be no Tax Deducted at Source (TDS) on the interest earned.

While there would be more such issues in the market, those who wish to invest in tax-free bonds should invest in this issue and not wait for other offerings. This is because the interest rate is expected to come down from the March quarter of 2013, and hence, one might see companies offering lower coupon rates going ahead.

Of the two series available, we would advise investors to opt for the second one as it is offering a higher coupon rate and is offered for a tenure of 15 years.

Issue Information

HUDCO Tranche 1 – Tax Free Bonds


Series 1 Bonds

Series 2 Bonds

Face Value

Rs 1,000

Minimum Application

Rs 5000 (i.e. 5 Bonds)


10 Years

15 Years

Coupon for Retail Individuals (% p.a.)



Interest Payment



Issue Opens On

9th January 2013

Issue Closes On

22nd January 2013

Listed On


Tax Rate (%)

Effective Yield (Pre Tax)










Find More Articles on: Markets, DSIJ Mindshare, Economy

collapse Related Readings collapse


Winds change direction for Crompton Greaves in Q1FY17

Winds change direction for Crompton Greaves in Q1FY17

Crompton Greaves (CGL) has declared its Q1FY17 results on Tuesday. The company’s revenue has increased by 38.56 per cent to Rs 1424 crore in Q1FY17 on a yearly basis. 

Index trend and stocks in action August 31, 2016

Index trend and stocks in action August 31, 2016

The range which was playing out for over a month was eventually saddled in the last trading session with a strong bullish candlestick, indicating a strong comeback of the bulls. Now going forward Nifty is likely to scale up to levels of 8857, which is 88.6 per cent retracement of down move from the higher levels.

Markets may open positive but lack sustenance

Markets may open positive but lack sustenance

Indian markets got a breakthrough from one month of consolidation where the benchmarks closed with fresh 52 week highs post a gap-up opening. Nifty hit its 16 month high at 8751 levels. Broader markets soared to hit new all time highs. PSU Banks led the move with 2 per cent plus sectoral gains.

RBL Bank to saddle the bourses

RBL Bank to saddle the bourses

Private sector lender, RBL is all set and ready to make its stock market debut on Aug 31. The Bank’s IPO garnered a lot of attention and was oversubscribed 70 times. 

RBL Bank lists at a premium

RBL Bank lists at a premium

Well it was largely expected that RBL Bank will list at a premium and it has indeed come into effect. RBL Bank which had set the price band of Rs 225 has listed at 276, up by 24 per cent. Bank had raised 363.88 crores through anchor investors.

Cox & Kings derails after weak Q1FY17

Cox & Kings derails after weak Q1FY17

Cox & Kings has declared its Q1FY17 results on Wednesday. The company’s revenue has decreased by 3.13 per cent to Rs 2065 crore in Q1FY17 as compared to same period in previous financial year. 

DLF to reduce debt: 40 per cent in rental asset arm to be sold

DLF to reduce debt: 40 per cent in rental asset arm to be sold

DLF stock has been under tremendous pressure owing to the piling up of huge debts over several years. Sans worrying debt levels the stock remains an attractive investment option and can add diversification benefits to the portfolio.

Kotak Mahindra Bank races ahead of peers: touches its all time high

Kotak Mahindra Bank races ahead of peers: touches its all time high

Kotak Mahindra Bank has touched its all time high on Wednesday at 11.15 am by touching Rs 800 per share. The stock has touched an intraday high of Rs 807 per share.

Top Gainers and Losers of mid-day

Top Gainers and Losers of mid-day

Following are the top gainers and losers of Aug 31. Dr. Lal PathLabs is the largest gainer; whereas Yamini Investments is the largest loser.

Mid-market commentary Aug 31

Mid-market commentary Aug 31

Yet again Indian markets have hit new highs where Nifty and Sensex hit 8800 and 28490 levels. Broader markets too have hit new all-time highs and maintained outperformance. Among sectors Auto and Media have driven the move with 1 per cent plus gains. Tata Motors and Ultratech Cement have surged the most with 3 per cent and more gains.

Subscribe to

news letter

More for the early bird.

Get the post-market reports and breakfast news right in your inbox. See latest »


What is your view on markets today?

200  Characters Remaining.
Please LOGIN  to post your comments or Click here to go back.
Anisha Bhardwaj Aug 31 01:11PM
Chandru K yes its really difficult to predict but reason for low trading volume is non availability of seller's as well as past record of share is also good it had fallen due to news of demerging only
Chandru K Aug 31 01:07PM
Anisha Bhardwaj exit Mandhana industries or keep a stop loss of 100. because stock daily trading low volume and daily OHLC or same its difficult to predict to stock movement.
saurabh mohite Aug 31 01:04PM
should i hold on maruti suzuki
Shivesh Singh Aug 31 01:02PM
where is RBL?
Anisha Bhardwaj Aug 31 12:26PM
Kindly, suggest for mandhana industries holding 315 shares at an average price of 96 Rs. How much I can expect to bag?