HUDCO IPO – Invest
While buying a house, most of us end up taking a loan from a bank or a housing finance company. But have you ever wondered where would your state government or municipality borrow from when it has to construct mass housing or drainage system or water recycling? HUDCO is one such company that has an expertise in lending towards social housing and urban infrastructure projects. Below are the investment arguments:
Investment Arguments
- Access to Low Cost Funds Allows HUDCO to Lend at Competitive Rates
Being a central government owned entity, HUDCO is rated AAA by rating agencies like CARE, CRISIL and IRRPL. In addition to this, HUDCO has been allowed to issue tax free bonds in the past, which are the lowest cost debt instruments in the country. This has enabled HUDCO to earn 2% spreads in the past despite lending to the state governments and agencies at competitive rates.
- Thrust on Affordable Housing, Strong Relationship with State Governments to Aid Growth
The governmental thrust on affordable housing should ensure significant pick-up in construction activity and this could aid HUDCO in growing its housing portfolio (currently 31% of loans). It can leverage the strong relationships that it has built with various state government and its agencies for growth (due to appraisal & monitoring role played in central schemes like DAY- NULM, JNNURM and PMAY).
- Prudent Lending Practices to ensure Lower Credit Costs
While providing the loans to state government, HUDCO assess the state’s repayment capabilities through analyzing allocation in the state budgets, alternate source of revenues, etc. In addition to this, 67% of loans to state sector are backed with state government guarantees. These measures have ensured that GNPA in this segment is merely 0.75%. We note that HUDCO had a bad experience in the private sector (61% GNPAs) and has stopped lending to them since 2013.
GreenEdge Wealth Services’ View
At the upper price band of Rs. 60 per share, the stock trades at 1.0x FY19E book. While comparison with HFCs is absolutely unwarranted due to the fact that HUDCO doesn’t lend directly to the home buyer, IPO valuations leave reasonable upside for investors lucky enough to get an allotment; we recommend investors to subscribe to the IPO.
Issue Details – HUDCO
| Issue Open Date | 8th May, 2017, Mon |
| Issue Close Date | 10th May, 2017, Wed |
| Issue Price (Rs.) | 56 to 60 |
| Market Lot | 200 (Retail investors should apply for 1 lot i.e. 200 shares only) |
| Minimum Application Size for Retail (Rs.) | 12,000/- |