PSU stock to buy: HUDCO offers 32% upside on healthy ROEs, asset quality, says DAM

DAM Capital is bullish on Navratna PSU Housing and Urban Development Corporation (HUDCO), highlighting the company's potential for growth in the infrastructure sector. The brokerage has set a target price of Rs 280 on HUDCO shares, suggesting a 32 per cent upside within the next 12 months. According to DAM Capital, HUDCO is well-positioned due to its unique role as a sector-agnostic lender with a substantial total addressable market.

For now,  DAM Capital ascribed a target multiple of 13 times on FY27 estimated earnings. "We initiate coverage on stock with BUY rating," it said. The brokerage noted that HUDCO has been expanding its product offerings to include segments such as metro, rapid rail, e-mobility, and water infrastructure projects. Furthermore, the firm anticipates benefits from strategic partnerships with states, resulting in MoUs valued at Rs 7-8 lakh crore.

DAM Capital highlighted HUDCO's growth in sanctions, increasing from Rs 25,000 crore in FY23 to Rs 1.3 lakh crore in FY25. This growth is expected to continue, with additional boosts from the Pradhan Mantri Awas Yojana (PMAY) programme. "The strong sanction pipeline is set to support continued growth, with expectations of a 25% AUM increase," noted the brokerage.

The company's asset quality remains robust, with no new non-performing assets reported over the last 10 quarters. This, coupled with a low average credit cost, reinforces HUDCO's standing as a low-risk investment compared to its peers. DAM Capital remarked, "it is a transformational time for the country in terms of infrastructure and that the company is one of the rare sector agnostic lenders with biggest total addressable market (TAM) compared to its peers."

DAM Capital's analysis suggests HUDCO's stock is trading at 10 times the estimated FY27 earnings. With expectations of mid-teen returns on equity and minimal asset quality issues, the brokerage foresees the stock converging to 14-15 times FY27 earnings, reflecting a potential increase in stock value.

The positive sentiment surrounding HUDCO is also due to its proactive approach in addressing urban infrastructure challenges. By planning to establish dedicated offices for large infrastructure projects, HUDCO is positioning itself to capitalise on future growth opportunities, ensuring sustained momentum in the coming years.

In conclusion, DAM Capital's positive outlook and target price suggest that HUDCO remains a compelling investment opportunity within the infrastructure sector. The combination of strategic expansion, strong asset quality, and market positioning underpins the brokerage's bullish stance on the company's future performance.