Up 770% in two years! Elara Capital sees more steam left in this PSU multibagger

Brokerage firm Elara Capital has continued to remain positive on public sector multibagger entity Housing & Urban Development Corporation Ltd, often abbreviated as Hudco. The brokerage had initiated coverage on the stock in May 2024 and still sees about 25 per cent upside in the counter as it believes convergence of cyclical and structural drivers to sustain valuations.
 

The dream run may continue for Hudco even as the PSU- and election-related frenzy has largely subsided, said Elara Capital. The brokerage expects over 20 per cent business CAGR over FY24-27E. The company is targeting Rs 15,000 crore AUM by FY26E indicative of robust growth trajectory, it said.
 

The next round of multiple re-rating will be underscored by the convergence in cyclical tailwinds-structural drivers, with fundamentals set to unfold into healthy earnings; strong show on business in FY24; vigorous leadership in place after a hiatus; and the ability to raise cheaper funding ushering in cost benefit, said Elara Capital.
 

Shares of Housing & Urban Development Corporation (Hudco) surged more than 3.35 per cent to Rs 294.80 on Thursday, but the shadow lender slipped to Rs 280.70 as the session progressed. The total market capitalization of the company stood well above Rs 56,000 crore. The counter settled at Rs 285.15 in the previous trading session on Wednesday.
 

About 40 per cent of Hudco's liabilities (taxable bonds) are priced 50 bps lower and another 7 per cent (foreign currency borrowings) 100bps lower than the blended cost of funds of 7.33 per cent in Q4FY24. The likelihood of Hudco issuing 54EC bonds in the near future (priced 200bps lower than most other instruments) would imply a further reduction in funding cost, it said.
 

According to Elara, state finances may combat delinquencies in project financing with strong near-term resolutions pipeline for legacy bad assets offers HUDCO the most-favorable position of 4–5-year NPA downcycle translating into lowest order credit cost. It expects NPA below 2 per cent and credit cost at 0.3 per cent by FY27E.
 

Shares of Hudco have surged about 770 per cent in the last two years from 33.90 in June 2022. The counter has zoomed nearly 400 per cent in the last one year. The stock has rallied 150 per cent in the last six months period, while it has gained 125 per cent in the year 2024 so far.
 

"We reiterate our constructive view as execution should reflect in financials hereafter. Given better growth/margin visibility and favorable asset quality, we raise FY25E-26E earnings estimates 9-15 per cent, as also EPS CAGR to 22 per cent, leading to RoA climbing to 2.6 per cent and RoE to 15 per cent through FY24-27E," Elara said.
 

HUDCO may continue to demand scarcity premium, benefitting the most from the government’s thrust on housing/infra and its niche business model (aided by high entry barrier, information asymmetry, distribution arbitrage given its liaison with government, management stability), Elara Capital said with a 'buy' rating and a revised target price of Rs 350.
 

Commenting on the PSU basket, Motilal Oswal Financial Services said that the profitability of PSUs is likely to improve notably across domestic and global cyclicals, with a sharp turnaround in the fortunes of PSU Banks driving the overall trend. "Hence, we expect the recovery in PSUs’ contribution to earnings and market capitalization to continue," it said.

 

 

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