Hudco IPO opens for subscription: Five things to know before you invest

The initial public offering (IPO) of Housing and Urban Development Corporation (HUDCO), a wholly-owned government company, has opened for subscription With the HUDCO IPO, the government is planning to divest 10 per cent of its stake as part of the disinvestment program.

The issue size is Rs 1,200 crore and 20.4 crore shares are on sale. The price band is Rs 56 to 60. The issue will remain open till May 11, 2017. Shares are available in lot of 200 shares and multiples thereafter. Retails investors and HUDCO employees will get a discount of Rs 2 (five per cent) on the price.

Before investing here are a few things you need to know about HUDCO IPO.

1.    HUDCO has an experience of more than 46 years in providing finance for infrastructure projects. It also lends for housing finance and it forms around 31 per cent of its loan book and the balance 69 per cent is towards urban infrastructure finance. At the end of 9MFY2017, HUDCO had total outstanding loan portfolio of Rs 36,385crore and 90 per cent of the total loan portfolio comprises of loans were given to various state governments and their agencies. Given the government's ambition to upgrade urban infrastructure is a positive trigger as opportunities to finance large scale projects could be expected.  

2.    HUDCO IPO is reasonably priced, say analysts. "At the issue price band of Rs 56-60, the stock is offered at 1.25x-1.35x its 9MFY2017 BV, which we believe is reasonably priced, and hence, recommend subscribe to the issue,"  said Siddhart Purohit, banking analyst at Angel Broking.

3.    HUDCO has been able to borrow at competitive rates from the market. The long term debt papers of HUDCO have a AAA rating which helps it raise funds at competitive rates and maintain a net interest margin (NIM) in the range of 4.6-4.3 per cent despite funding large and long gestation projects.

4.    HUDCO's share of housing finance was around 31 per cent in 9MFY2017 and the management wants to increase it further by leveraging the growth opportunity arising from recently implemented government schemes like Pradhan Mantri Awas Yojana (PMAY) and National Urban Livelihoods Mission (NULM) and housing for all by 2022. Choice Broking has recommended "subscribe" for the IPO.

5.    HUDCO reported gross non-performing assets (GNPAs) of 6.80% at the end of 9MFY2017. HUDCO's high non-performing assets were due to large defaults from some of the private sector corporates it had exposure to earlier. However, NPAs from the government sector is only 0.75 per cent. It has already done substantial provisions on the private sector NPAs and stopped lending to them since FY2013 and, hence, Purohit of Angel Broking doesn't expect material change in NPAs in the near term.