IPO Note - HUDCO
08 May 2017
Nutan Gupta
New Page 1
Issue Opens - May 8, 2017
Issue Closes - May 11, 2017
Price Band - Rs. 56-60
Face Value - Rs. 10
Issue Type - 100% book building
% Shareholding
|
Pre IPO
|
Post IPO
|
Promoter
|
100.0
|
89.8
|
Public
|
0.0
|
10.2
|
Source: DRHP
HUDCO is a wholly-owned government entity with more than 4 decades of
experience in providing loans for housing and urban infrastructure in India. It has an
outstanding loan portfolio of Rs.36,386 cr (as on 9MFY17), which can be divided into–
Housing Finance (30.86%) and Urban Infrastructure Finance (69.14%).
The offer consists of Offer for sale (OFS) of up to 204.1 mn equity
shares for disinvestment by the government and employee reservation is up to 3.9 mn
shares. There is a discount of Rs. 2 per share for eligible employees and retail
investors.
Key Investment Rationale
HUDCO currently focuses on the low income group or the economically
weaker sections for housing finance and social housing. The company’s housing finance
loan book has grown at a CAGR of 21.9% over FY14-16. This segment has better NIMs and
lower gross NPAs @ 3.08% (8.46% for urban infrastructure). There is an increasing demand
for housing loans from Tier II/III cities. Deployment of funds towards housing loans by
banks and HFCs has increased over the years.
The HUDCO Board decided to stop sanctioning new Housing Finance loans
to private sector entities in FY14 in order to reduce NPAs from the private sector. As on
December 31, 2016, its gross NPAs for loans made to the private sector (excluding loans
given to individuals) were 5.98% compared to 0.75% for loans to state governments.
Furthermore, the management decided to stop sanctions of new Urban Infrastructure Finance
loans to the private sector. Since 2014, state governments and their agencies represent
99.94% of the total sanctions. As a result, net NPAs have decreased from 2.52% in FY14 to
1.51% in 9MFY17.
The issue is attractively priced at 1.4x9MFY17 P/Adj.BV (upper band
price).
Risks Involved
HUDCO’s loan growth may be restricted by a slowdown in real estate
and increasing competitive intensity. Also, the company faces general business risks of
providing organized finance to LIG and EWS and competitive pricing of HFCs as compared to
banks.