Housing and Urban Development Corporation's (Hudco) initial public offering (IPO) opens today at a time when the government is emphasising on the need for affordable housing.
The company's lending strategies ensure the non-occurrence of non-performing assets (NPAs) which is clearly seen in its performance in the past three years.
Hudco primarily lends to centre and state projects that are concerned with housing and urban infrastructure.
The company's business operations are as follows:
1. Hudco's loan book stood at Rs 36,386 as on December 31, 2016. 31 per cent constituted to the housing sector while 69 per cent was loans towards the infrastructure sector.
2. State governments and their agencies constitute 90 per cent of the loan book.
3. Among loans to the housing sector, Hudco focuses on the low income group and the economically weak sections which make up 69 per cent of the loan towards housing sector.
4. Loans for urban infrastructure comprise of 34 per cent to water supply projects, 29 per cent to road projects and 21 per cent to state electricity distribution companies.
Here are Hudco's key numbers you should be aware of:
1. According to The Business Standard, investors should not anticipate huge earnings but can be assured steady and balanced financials.
2. Hudco procures funds from tax-free and taxable bonds, deposits, commercial paper, refinancing assistance from the National Housing Board and term loans to meet its operations.
3. Since the company has government ownership, it makes it easier for Hudco to borrow long-term loans at low cost.
4. The infrastructure boasts a high capitalisation because its loans to states are backed by guarantees, securities and mortgages. This is the reason behind its NPAs for state projects figuring below 1 per cent.
5. However, the hindrance of replacing the above structure with private sector loans have resulted in gross NPA ratio to shoot up to 6.8 per cent. This heightened level will approximately take 12-18 months to decrease to normalcy.
1. Governmental changes in housing policies might affect the outlook of Hudco, but this is highly unlikely.
2. Any sudden change in the bond yields will see a direct effect on the company's net interest margins.
3. The IPO will reduce the government's stake to 89.8 per cent from 90 per cent.
Many experts and analysts such as Motilal Oswal Securities, IIFL, Antique Stock Broking, Reliance Securities and Axis Capital endorse the subscription of Hudco IPO, reports Business Standard.