Government-owned Housing and Urban Development Corporation (HUDCO)’s IPO has opened today with a goal to raise over Rs 1,120 crore. The IPO is a part of government’s efforts to meet its disinvestment target. 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.
Angel Broking has recommended a ‘subscribe’ to the issue. The Brokerage house said, “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. Focus on government sponsored projects and ability to raise funds at a competitive price provides earnings visibility for many years.”
Centrum has recommended a ‘subscribe’ to the issue. The brokerage house is betting on the government’s housing push going forward but is also cautious on the execution front. “With most of its business is state government driven, the growth will be highly dependent on the pace of execution of government projects,” the brokerage house 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,” the brokerage house said. “Furthermore, given the interest of the market in housing and urban infrastructure segments, there could be listing gains as well,” Centrum said in its report.
“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 added. “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’,” the report concluded.
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Reliance Securities has recommended a ‘subscribe’ to the issue. The brokerage house pointed out that HUDCO is not directly comparable to any listed NBFCs as it is primarily engaged in wholesale funding compared to retail lending by the others.
It expects HUDCO to deliver a healthy performance due to the growth opportunity in housing and urban infrastructure. “It provides a favourable investment opportunity for long-term investors with attractive valuations,” the brokerage house said in its report. “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. Further, a discount of Rs 2/share to the retail investors acts as an additional sweetener,” the report added.
IIFL has recommended a ‘subscribe’ to the issue. The Brokerage House sees the growth opportunities for HUDCO growing significantly, thereby enabling the company to swell its loan assets faster than its historical pace. “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,” it said in a report.
Going forward, IIFL terms the company being substantially capitalized and commanding the highest credit rating. The company will, therefore, be able to raise long-term money at the best possible rates from the bond market, it added. “Consequently, credit cost may come off in the coming years augmenting the franchise profitability. Given the reasonable visibility for steady asset growth and better return ratios, the IPO valuation seems attractive.”