HUDCO IPO – Should you subscribe this IPO or not?

HUDCO IPO - Should you subscribe for this IPO or notHUDCO IPO – Should you subscribe this IPO or not?


Government owned, Housing and Urban Development Company Limited (HUDCO) is coming up with IPO in this month. HUDCO IPO would open for subscription from 8th May, 2017. HUDCO Ltd is wholly-owned Government company with more than 46 years experience in providing loans for housing and urban infrastructure projects in India. Its revenues grown at 4.4% CAGR in last 5 years. It earns over 22% profits in last 5 years. What are the positive factors in HUDCO IPO? What are the hidden factors in HUDCO Limited IPO?  In this article, I would provide some interesting insights and hidden facts and do HUDCO IPO Review.

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About HUDCO Limited


HUDCO stands for Housing and Urban Development Company. Company is a wholly-owned Government company with more than 46 years experience in providing loans for housing and urban infrastructure projects in India. They have been conferred the status of Miniratna (Category-I Public Sector Enterprise) by the GoI. As at September 30, 2016, its total sanctioned loans since our inception was Rs 1,570,870 million, Rs 612,305.4 million of which, or 38.97%, were Housing Finance loans and Rs 958,573.2 million of which, or 61.02%, were Urban Infrastructure Finance loans. As at September 30, 2016, its total outstanding Loan Portfolio was Rs 361,119.3 million, Rs 112,951.1 million of which, or 31.28%, were Housing Finance loans and Rs 248,168.2 million of which, or 68.72%, were Urban Infrastructure Finance loans and project-linked bonds.  

Issue details of HUDCO IPO


  • IPO opens: 8-May-2017 (Tentative)
  • IPO closes: 11-May-2017 (Tentative)
  • Face Value: Rs 10 per share
  • Issue price band: Rs 56 to Rs 60 per share.
  • Issue size: Rs 1,224 Crores
  • Market lot: minimum of 300 shares
  • Minimum investment: Rs 14,400 on lower price band
  • Leading Managers: IDBI Capital, ICICI Securities, Nomura Financial
  • Listing: BSE / NSE
  • Download HUDCO IPO DRHP Prospectus at this link

Objects of the HUDCO Limited IPO issue


(i) to carry out the disinvestment of 20 Crore Equity Shares by the Selling Shareholder constituting 10% of our Company’s pre-Offer paid up Equity Share capital our Company; and

(ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

Company Financials


1) The company generated revenue of Rs 2,778 Crores for the year ended Mar-12 and Rs 3,302 Crores for the year ended Mar-16.

2) The company posted a profit of Rs 621 Crores for the year ended Mar-12 and profit of Rs 775 Crores for the year ended Mar-16.

3) Its restated basic EPS for FY ending Mar-16 is Rs 3.87 and last 3 years EPS was Rs 3.83

Financial summary of HUDCO Limited IPO

What are HUDCO Key Strenghts?


a) Key role in various Government’s schemes to develop the Indian housing and urban infrastructure sectors and a very high proportion of its Loan Portfolio is to State Governments and their agencies.

b) Highest credit ratings, access to diversified and lower-cost funding and ability to significantly increase its borrowings in compliance with the HFC Directions.

c) Established track record, profitable since inception and a strong financial position.

d) Pan-India presence and strong relationships with State Governments and their agencies.

e) Experienced senior management team and a large pool of skilled and professional employees.

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Reasons to invest in HUDCO IPO


  • Good margins above 22% in the last 5 years.
  • Pan  India presence in State Govt projects. HUDCO maintained high margins in last 5 years inspite of participating in Govt. projects.
  • High Credit rating.

Reasons not to invest in a HUDCO Limited IPO


  • Revenue grew at 4.4% CAGR in last 5 years which is very low. In future one may not expect high growth rate based on the past performance.
  • If the level of its non-performing assets in company outstanding loans, advances and investments in projectlinked bonds were to increase or the NHB-mandated provisioning requirements were to increase, its results of operations and financial condition would be adversely affected.
  • If its borrowers default on their obligations, they may be unable to foreclose on their loans on a timely basis, or at all, or realise the expected value of our collaterals and this may have a material adverse effect on its results of operations and financial condition.
  • Volatility in interest rates could adversely affect its business, net interest income and net interest margin, which in turn would adversely affect its results of operations and financial condition.
  • They may be unable to secure funding on commercially acceptable terms and at competitive rates, which could adversely affect its business and its results of operations.
  • One of its Independent Directors, Anand Kamalnayan Pandit has been restrained from buying, selling or dealing in the securities markets by SEBI.
  • Two of company goals are to increase its lending for Housing Finance and the social housing segment both in absolute terms and as a percentage of its Loan Portfolio, which may result in a decrease in its NIM If the GoI does not allocate us amounts for issuing tax-free bonds or capital gains bonds or if the NHB does not enter into refinancing transactions with us.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – HUDCO Limited IPO


  • On the upper price band of Rs 60 and on FY16 EPS of Rs 3.87, P/E ratio works out to 15x. Even based on last 3 years EPS of Rs 3.83, P/E ratio works out to be 15.6x. Means company is asking higher price band of Rs 60 in the P/E ratio of 13x to 13.6x. There are no listed peers to compare, hence we cannot say whether the issue is highly priced or under priced. However, based on P/E ratio, it looks the issue is reasonably priced
  • Company revenues grew at 4.4% CAGR in last 5 years which is very low. However, it earns decent profits of over 22% in last 5 years. Issue also is reasonably priced. I would have been excited if revenues are on upward trend in the past. This IPO may see mixed reaction from investors considering these factors. High risk investors can invest in this IPO for a 2-3 years time frame. If one can get listing gains, you can do party.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

HUDCO IPO – Should you subscribe this IPO or not

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