Government-owned Housing and Urban Development Corporation (HUDCO)’s IPO, for which bidding opened on BSE and NSE on Monday, has been subscribed over 79 times. Qualified institutional investors bid more than 55 times the reserved portion kept for them, while the retail investors bid more than 10 times their quota but the biggest response came from non-institutional investors who subscribed more than 330 times their reserved portion. However, subscription of HUDCO employees was only 70% of their reserved quota.
The IPO, whose proceeds will go to the government and not to the company, is a part of government’s efforts to meet its disinvestment targets. The government plans to divest 10% or 20,01,90,000 of its shares through the Offer For Sale (OFS) route.
HUDCO IPO’s price band had been set in the range of Rs 56-60 per share with a discount of Rs 2 per share for retail investors, and seeing the response the offer has got, it seems investors found the pricing of the offer inexpensive in light of the fundamentals of the company (read more). HUDCO, which provides loans for housing and urban infrastructure projects in India, is a state-run entity and has more than 46 years’ experience in providing loans for housing and urban infrastructure projects in India.
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The company boasts of a strong financial performance including consistently increasing revenues and strong profitability. The company’s top-line has increased in each of the last four years and looks on track of doing an encore this year as well. Similarly, its proven business model means profits have remained strong and have followed a growth trajectory in the time frame.
HUDCO’s sustained performance and profitability earned it the Miniratna status in fiscal 2005. While its earnings have improved, profitability has slipped a bit in the last six months. Nevertheless, net profit margin at 19.9% is still quite strong given its huge size.
Being a profitable PSU, HUDCO pays a regular dividend and this is something retail investors will find attractive. The company is required to pay a minimal annual dividend of 30% of its profit after tax (PAT) or 5% of its net worth, whichever is higher. Although this was not maintained in the latest financial year, the dividend rate of 5% was still quite attractive.
As of 30 September 2016, the total assets under management (AUMs) for the wholly-owned government company were at about Rs 36,110 crore, which included housing finance assets of Rs 11,290 crore and urban infrastructure finances of Rs 24,820 crore.