HUDCO IPO Analysis
About the issue
HUDCO is coming in the market with its IPO offer comprising an issuance of 20.4 cr shares in the price band of Rs 56 – Rs 60 per share at the face value of Rs 10 per share. The lot contains 200 equity shares. The IPO is expected to raise Rs. 1107.05 cr in lower band and Rs. 1187.13 cr in upper band. QIB, NIB and retail would be offered 50%, 15% and 35% of the shares in the IPO respectively. A discount of Rs 2 would be available to retail investors and eligible employees per share. The issue will remain open during May 8, 2017 to May 11, 2017.
Hudco is in the business of providing loans for housing and urban infrastructure projects in India and currently a wholly-owned government company. It was incorporated as "The Housing and Urban Development Finance Corporation Private Limited" on April 25,1970 as a private limited company. After receiving the certificate of incorporation by the then Registrar of Companies, Delhi the company was named as "Housing and Urban Development Corporation Limited". It was later notified as public financial institution by department of Company Affairs, Ministry of Finance, Gol. The company has also received the status of a Miniratna in Category-1 by the Gol.
The loan products of the company under housing finance are categorised into loans for social housing, residential estate and HUDCO Niwas. The Urban Infrastructure Finance segment is classified as water supply, roads and transport, power, emerging sectors, commercial infrastructure and others, social infrastructure and area development, and sewerage and drainage.
The company also provides consultancy services in the area of housing and urban development. It includes providing services for government programmes and advising on urban and regional planning, design and development, environmental engineering and social development. Some of the major projects for the company include DPRs for Urban Resource Centre at Gangtok, Sikkim; DPRs for thane and Kolkata under BSUO, JNNURM. The company received the "value growth award" at PSU awards 2016 for being a growth oriented company. The company started its operations with 19 Schemes in 1971-72 to 202 schemes in 2015-16.
The company is about to participate in Pradhan Mantri Awas Yojna (PMAY) under Housing for All (HFA) by 2022 which has good growth potential. The management envisions the company to be among the world’s leading knowledge hubs and techno-financial organizations for green and sustainable habitat development.
Indian population is estimated to be around 1.3 billion as on year 2015 and will have the largest and youngest workforce around the world. Also, the country is undergoing a massive urbanisation with 10 million of population moving to urban from rural each year.
According to the reports by ICRA, total outstanding housing credit is 12.8 trillion which has shown a growth of 19% over the previous year. This demand is mainly catered by HFCs and NBFCs which are likely to get benefitted in future. Also in ICRA's opinion the housing finance sector will register a growth of 18% to 20% in fiscal year 2017. The long-term growth remains to be a positive outlook because of government’s initiation towards infrastructure development and housing for all.
The company has grown at a CAGR of 4.41% and has posted revenues of Rs. 3302 Cr in FY16 from Rs. 3427 Cr over the previous year. The company reported earnings (EBITDA) CAGR of nearly 3.37% during the period FY12-FY16 has resulted in operating profits of Rs. 1072 Cr in FY16. The bottom line for the company has been rising since its inception and the net profit for the year FY16 is reported as Rs. 783 Cr which has grown at a CAGR of 5.59% during the period FY12-FY16.
The total outstanding loan portfolio up till December 31, 2016 was Rs. 36386 cr. Out of these 38.97% were Housing Finance and 61.02% were given to Urban Infrastructure Finance. HUDCO posted a net profit of Rs 496 crore over a total income of Rs 1,169 crore during April-December period of last fiscal.
Valuation and Peer Comparison
On the upper price band of Rs. 60 with EPS of Rs. 3.87, its P/E ratio and P/B ratio works out to 15x and 1.3x respectively. There is no direct listed peer but it can be compared with home loan providers like LIC Housing, PNB Housing and SREI Infrastructure Financing.
Considering the long-term growth in the housing finance and infrastructure sector and attractive valuation of HUDCO, we urge investors to subscribe the issue.
(With additional inputs from Abhay Mourya)