HUDCO IPO review – Things to know before applying

HUDCO (Housing and Urban Development Corporation) is a Government of India enterprise which provides loan in India for housing and urban infrastructure projects. HUDCO is coming up with a IPO. They are going to introduce their initial public offer which will hit the primary market on 8^th May 2017 and closes on 11^th May 2017. The company aims to raise around Rs. 1,100 crore by offering shares at Rs. 56-Rs. 60 per Equity Share.

About Company

HUDCO was incorporated at New Delhi as “The Housing and Urban Development Finance Corporation Private Limited” on April 25, 1970. HUDCO is a wholly-owned Government company. They have more than 46 years of experience in providing loans for housing and urban infrastructure projects in India.

Classification of Housing loans- They classify their housing finance loans into

• Social housing- Under this, the ultimate beneficiaries of the loans which they make are borrowers belonging to the economically weaker sections (“EWS”) of the society, which is defined as families with household income of ` 300,000 per annum or less, and borrowers belonging to the lower income group (“LIG”), which is defined as families with household income from ` 300,001 per annum to ` 600,000 per annum.
• Residential real estate- Under this, the ultimate beneficiaries of the loans they make are public and private sector borrowers for housing and commercial real estate projects, including land acquisition. Such housing and commercial real estate projects cater primarily to the middle-income group and high-income group of society.
• Retail finance

Those are branded as HUDCO Niwas (collectively, “Housing Finance”).Under HUDCO Niwas, they provide financing to individuals directly and bulk loans to State Governments, their agencies and public sector undertakings (“PSUs”) for on-lending to their employees and to other HFCs for on lending to the general public.

Urban Infrastructure Finance

The infrastructure sector plays a crucial role as a vehicle of growth in economies, and even more so in emerging economies, which usually face infrastructure deficits with respect to their growing populations. The borrowers under Urban Infrastructure Finance are primarily State Governments and their agencies. Under urban infrastructure finance, they make loans for projects relating to:

• Water Supply: Under water supply, they finance water related projects to un-serviced areas, rehabilitation projects and augmentation of existing supply and quality.
• Roads and Transport: Under roads and transport, they finance roads, bridges, ports, airports, railways and purchase of buses.
• Power: Under power, they finance power generation (hydro, thermal, wind, solar and bio mass based), transmission and distribution systems.
• Emerging Sector: Under the emerging sector, they finance SEZs (special economic zones) industrial infrastructure, gas pipelines, oil terminals and telecom sector projects.
• Commercial Infrastructure and Others: Under commercial infrastructure and others, they finance shopping centres, market complexes, malls-cum-multiplexes, hotels and office buildings.
• Social Infrastructure and Area Development: Under social infrastructure and area development, they finance health, education and infrastructure projects (such as hospital, health centres, schools and other educational institutions, community centres and parks), integrated area development schemes (such as the development of new towns, urban extensions and growth centres) and basic sanitation projects.
• Sewerage and Drainage: Under sewerage and drainage, they finance new schemes and augmentation and rehabilitation projects relating to sewerage, drainage and solid waste management.

They also provide consultancy services which include providing services for government housing and urban infrastructure programs and plays a key role in various Government’s schemes such as DAYNULM, JNNURM and PMAY-HFA (Urban), through the appraisal and monitoring of projects. They also advise on urban and regional planning, design and development and environmental engineering.

Qualitative Factors

Some of the qualitative factors and strengths which form the basis for the Offer Price are:

1. Key role in various Governments’ schemes to develop the Indian housing and urban infrastructure sectors and a very high proportion of Loan Portfolio is to State governments and their agencies.
2. Highest credit ratings, access to diversified and lower-cost funding and ability to significantly increase borrowings in compliance with the HFC Directions;
3. Established track record, profitable since inception and a strong financial position;
4. Pan-India presence and strong relationships with State Governments and their agencies; and
5. Experienced Board and senior management team and a large pool of skilled and professional employees.

STRATEGIES

1. Grow total Loan Portfolio and increase Housing Finance and social housing as a percentage of our total Loan Portfolio
2. Continue to focus on sanctioning loans to State Governments and their agencies
3. Increase financing of housing and urban infrastructure projects with increasing geographical reach to smaller cities
4. Continue to participate in the implementation of government housing and urban infrastructure programs.
5. Incentivize borrowers to avail fixed interest rate loans so as to better match our assets and liabilities and thereby decrease our interest rate and liquidity risks
6. Continue to raise funds from diverse sources

Objects of the Issue:

The objective of the issue are to:

1. Carry out the disinvestment of 200,190,000 Equity Shares by the Selling Shareholder constituting 10% of the Company’s pre-Offer paid up Equity Share capital Company.
2. To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

Financials

The company generated a revenue of 3,204 Cr in 2016 and net profit was 775 Crore. Its EPS for 2016 is 3.87, while the average for last three year being 3.83. Based on the price of Rs 50 per share, P/E ratio is around 13 times which is low compared to average exchange P/E.

Find out HUDCO IPO allotment status here.