Reviews

In this edition, we have reviewed HUDCO and Bata India. We suggest our reader-investors to HOLD in HUDCO and Bata India

We had previously recommended Housing and Urban Development Corporation Ltd (HUDCO) in Volume 35, Issue No. 3, dated January 6 – 19, 2020 under the ‘Low Priced Scrip’ segment. It was recommended based on the company’s huge growth potential, consistent financial performance and low-risk loan portfolio. HUDCO is one of the leading institutions in the public sector supporting the housing, housingrelated infrastructure and other infrastructure development initiatives.

Looking at the quarterly trends on a consolidated basis, for Q3FY20 the company posted a total income of Rs 1,802.39 crore which is an increase by 36.58 per cent compared to the total income of Rs 1,319.65 crore for Q3FY19. HUDCO reported Rs 1,779.13 crore as income from interest in Q3FY20, compared to Rs 1,284.20 crore for Q3FY19. The PBDT for Q3FY20 was Rs 355.58 crore, decreasing by 33.62 per cent compared to Rs 535.70 calculated for Q3FY19. The company gained net profit of Rs 205.94 crore in Q3FY20, contracting by 37.26 per cent compared to Rs 328.26 crore gained in Q3FY19.

As for the annual financial trend, for FY19 the total income of the company increased by 32.99 per cent to Rs 5,547.64 crore from Rs 4,171.36 crore for FY18. The PBDT increased by 32.14 per cent and stood at Rs 1,868.51 crore for FY19 as compared to Rs 1,414.09 crore for FY18. Net profit increased by 16.83 per cent to Rs 1,179.85 crore in FY19 from Rs 1,009.91 crore in FY18. 

HUDCO is considered to benefit from its healthy financial flexibility and adequate liquidity profile. Additionally, the company is a preferred lender for the housing projects initiated by various state governments. Since HUDCO has a diversified portfolio with disbursements to state governments and public sector agencies, it has been able to reduce its risk, thus resulting in a strong growth trend. Hence, we recommend HOLD.

We had previously recommended Bata India in Volume 35, Issue 3, dated January 6 – 19, 2020, under the ‘Choice Scrip’ section. The stock was then trading at Rs 1,822.35 and was recommended based on the company’s strong financial performance, good growth prospects and focussed management. Bata India is engaged in the business of manufacturing and trading of footwear and accessories through its retail and wholesale network.

On a quarterly consolidated front, net sales declined by 8.77 per cent to Rs 620.57 crore in Q4FY20 from Rs 680.24 crore in Q4FY19. The company reported an operating profit of Rs 156.75 crore in Q4FY20, increasing by 27.59 per cent from Rs 122.86 crore in Q4FY19. The net profit reported by the company was Rs 38.41 crore in Q4FY20, falling by 56.68 per cent from Rs 88.67 crore in Q4FY19.

Looking at the annual trends, the company reported net sales of Rs 3,056.11 crore in FY20 from Rs 2,931.10 crore in FY19, increasing by 4.26 per cent. The operating profit came in at Rs 900.77 crore in FY20, growing impressively by 65.19 per cent from Rs 545.28 crore in FY19. Net profit was reported at Rs 328.95 crore in FY20 and Rs 328.99 crore in FY19.

Although growth has remained challenged due to the present uncertain business environment, with a gradual revival in demand Bata India remains well-positioned to recover given its strength from its product mix, brand recognition, expanding distribution network, debt-free status, cost optimisation efforts and digital capabilities. Thus we recommend HOLD.

(Closing price as of June 17, 2020)