Hudco IPO opens today: Should you buy?

The Rs 1,224 crore initial public offering (IPO) of state-run Housing and Urban Development Corporation (Hudco), a ‘Mini Ratna’ firm, will hit the capital market on Monday. The government...

The Rs 1,224 crore initial public offering (IPO) of state-run Housing and Urban Development Corporation (Hudco), a ‘Mini Ratna’ firm, will hit the capital market on Monday.

The government intends to sell 2,04,058,747 shares in the Rs 56-60 price band. The issue closes off on May 11.
The company focuses mainly on loans to state governments and agencies and plans to grow the housing finance portfolio going ahead. Out of the total of Rs 36,386 crore total outstanding loans, the housing finance business accounts for 30.9 per cent, while urban infrastructure finance loans and project-linked bonds account for the rest 69.1 per cent.

The government plans to dilute 10.19 per cent holding through this IPO. Hudco made a profit of Rs 496 crore on a total income of Rs 1,169 crore during April-December period of FY17.

Purohit noted that Hudco has a unique blend of business with the focus on financing both housing and urban infrastructure that has a vast untapped opportunity in India.

“The focus on the government-sponsored projects and ability to raise funds at a competitive price provides earnings visibility for many years. At the issue price band of Rs 56-60, the stock is offered at 1.25-1.35 times its 9MFY2017 book value, which we believe is reasonably priced, and hence, recommend subscribe to the is the issue.”

“Hudco’s bulk of business is B2B compared to the B2C model followed by most listed NBFCs – hence there are no comparable listed peers. Going ahead, with government’s focus on improving urban infrastructure along with initiatives such as Housing for All by 2020, 100 Smart Cities, etc., HUDCO has a good opportunity for growth. However, with most of its business is state-government driven, the growth will be highly dependent on the pace of execution of government projects,” the brokerage said.
Given the current financial profile, growth prospects, and IPO valuations, investors with a long-term perspective can be advised to Subscribe, the brokerage said, adding that the stock is likely to provide listing gains due to market interest in the housing and urban infrastructure segment.

The brokerage believes long-term investors can skip this IPO, but retail investors can apply for it for short-term listing gains as it offers a Rs 2 per share discount.

 

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