Government-owned Housing and Urban Development Corporation (HUDCO)’s IPO which opened for bidding on Monday with a goal to raise over Rs 1,120 crore has been subscribed almost 12 times at Noon today. As the bidding for the offer is scheduled to close in a few hours, all classes of investors — institutional, non-institutional and retail — have subscribed overwhelmingly to the IPO, which is a part of government’s efforts to meet its disinvestment targets.
The price band has been set in the range of Rs 56-60 per share. The issue comprises sale of 20 crore equity shares (10 percent paid-up capital) by the central government through an offer for sale (OFS). The offer will close on May 11. HUDCO is a wholly-owned government company which provides loans for housing and urban infrastructure projects in India. As of 30 September 2016, the total assets under management (AUMs) were about Rs 36,110 crore, which included housing finance assets of Rs 11,290 crore and urban infrastructure finances of Rs 24,820 crore.
Let’s see what’s drawing investors to subscribe.
1. Scope and USP
HUDCO’s business, besides having a huge growth potential is unique too, because HUDCO is not directly comparable to any listed NBFCs. HUDCO is primarily engaged in wholesale funding compared to retail lending by the other NBFCs.
“HUDCO has a unique blend of business, with a focus on financing both housing and urban infrastructure, which has a vast untapped opportunity in India,” Angel Broking said.
2. Momentum with limited downside
Government’s focus on affordable housing will allow HUDCO to increase its loan assets at high speeds and this will propel it towards new heights while keeping the downsides to a bare minimum.
“With most of its business being state government driven, the growth will be highly dependent on the pace of execution of government projects,” Centrum said in a report.“Given the current financial profile, growth prospects and IPO valuations, investors with a long-term perspective can be advised to subscribe. Furthermore, given the interest of the market in housing and urban infrastructure segments, there could be listing gains as well,” the report added.
“With provision coverage ratio of 79 percent, the NPAs are largely provided for. Also, to avoid further asset quality risk, HUDCO has stopped disbursal to the private sector in March 2013,” the report concluded.
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3. Attractive Valuation
HUDCO’s IPO price band has been set in the range of Rs 56-60 per share which provides it with a very attractive valuation.
“At the upper price band of Rs 60, HUDCO’s market cap would stand at Rs 12,000 crore, which gives it a price-to-book multiple of 1.3x on December 2016 book value,” Reliance Securities said.
“At the higher end of the price band of Rs 60, the stock is valued at 1.6x its FY16 adjusted book value (ABV). The valuation appears attractive, given the good fundamentals and highest credit rating of ‘AAA’,” Centrum said.
“Given the reasonable visibility for steady asset growth and better return ratios, the IPO valuation seems attractive,” IIFL said.
4. Sound Fundamentals
The company is substantially capitalised and commands the highest credit rating of ‘AAA’. This allows the company to raise long-term money at the best possible rates from the bond market.
“The loan spread is expected to remain steady at 2-2.2% over the longer term, although there could be intermittent volatility due to a higher share of floating rate assets,” IIFL said. “Consequently, credit cost may come off in the coming years augmenting the franchise profitability,” the brokerage house adds.
5 Discount for Retail Investors
Retail Investors have been offered a discount of Rs 2 per share which makes the valuations even better for them and also promotes retail participation in the offer.
“Further, a discount of Rs 2/share to the retail investors acts as an additional sweetener,” Reliance Securities added.