Recommendations from Housing Sectors

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

Housing & Urban Development Corp. 

BUILD YOUR PORTFOLIO ON SOLID FOUNDATION 

HERE IS WHY
Low-risk loan portfolio
Huge growth potential
Consistent financial performance

Housing and Urban Development Corporation (HUDCO) is one of the leading institutions in the public sector supporting the housing, housing-related infrastructure and other infrastructure development initiatives. With the various flagship programme(s) of Government of India in the Housing and Urban development sector being in active implementation mode, HUDCO’s role, contribution and associated financial strength would continue in the coming years while, HUDCO would continue to strengthen its position as a reliable institution for country building initiatives. Its ability to provide comprehensive support for technical appraisal, taking up site-inspections wherever required, and providing loan assistance as viability gap funding to States and their agencies make it a unique institution.

HUDCO’s portfolio is less risky due to the focus on government-sponsored and social housing projects. The credit risks in these exposures are relatively low, given the guarantees and budgetary provisions from Central/state governments for debt servicing by the concerned entities. HUDCO has restricted its fresh exposures to the private sector since 2013. Nearly 96 per cent of loan book is backed by government.

The Union Budget 2019-20 has laid a special focus on affordable housing and infrastructure sectors. The government intends to invest Rs 100 lakh crore over the next five years. Government of India has taken several initiatives to boost affordable housing and to revitalise the urban sector. India has a huge gap of housing. The Government of India’s ‘Housing for All’ initiative is expected to bring USD 1.3 trillion investments in the housing sector, by 2025. There is a substantial opportunity for funding housing and urban infrastructure in the country. HUDCO, with its vast experience in providing consultancy services and financial assistance for implementation of affordable housing projects could benefit from this trend.

The requirement of housing is growing in the context of rapid pace of urbanisation and increasing level of migration from rural areas to urban areas for livelihood. The fast-paced urbanisation in the country, which is linked to the economic progress of the country, has led the urban areas to encounter some serious challenges on the socio-economic front, such as unemployment as well as excess-load on existing infrastructure in cities, like housing, sanitation, transportation, health, education, utilities, etc. With the current trend of urbanisation, the number of Indians living in urban areas is expected to reach 543 million by 2025. With an increasing urbanisation, the demand for upgrading the housing and urban development needs in the country will increase, providing a huge potential for business operations of HUDCO.

On a consolidated basis, the gross sales increased to Rs 2,044 crore in Q2FY20 as against Rs 1,224 crore in Q2FY19 showing a rise of around 67 per cent. EBITDA for Q2FY20 was Rs 1,996 crore as against Rs 1,100 crore in the same quarter last year, showing a growth of 81 per cent. PAT in the same period grew by 157 per cent to Rs 725 crore in Q2FY20 as against Rs 282 crore in Q2FY19. On YoY basis, the company has shown sales, PAT growth and consistent RoCE of around 8.4 per cent for the past 3 years. By virtue of these factors, we recommend our reader-investors to BUY this stock.