HUDCO IPO ----- Overpriced and Risky

HUDCO acronym for HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED is entering the capital market in April. Market participants are mistaking HUDCO as a housing finance company and comparing it with the likes of PNB Housing Finance etc. The fact is totally opposite as 89.88% of the loan book of HUDCO is to State governments and its agencies and 10.17% to private sector.
Housing Finance of total loan portfolio is 31.28% (30.34% to state govt for social housing loans, 0.40% to individuals and 0.57% to private sector companies) and 68.72% of the total loan portfolio is advanced for Urban Infrastructure like water supply projects, Roads and Transport, Power, Sewage and Drainage etc.
Average loan size for Housing finance is Rs.56.66 Crores and for Urban Infra it is Rs.54.54 Crores.
Further fixed rate borrowing constitutes 97.94% of HUDCO’s borrowings whereas it has lent 81.32% of its loans to borrowers at floating rate of interest which is a very serious mismatch in a falling interest rate scenario.
HUDCO was allowed to borrow at very attractive rate of interest via Tax free bonds till 2016 and tax free bonds constitutes 78% of HUDCO’s total borrowing. In the current budget the Central Govt has not provided this facility to HUDCO to borrow via tax free bonds and this will increase the cost of funds for HUDCO substantially.
Comparing HUDCO with REC would make one realise that the asking issue price of 50/- is very steep and fraught with huge risk for the investing public.


Excellent analysis and Kudos for comparison to REC.

should get decent return over long term as goverment is giving priority to budget housing

HUDCO IPO – Schedule – Page #555 of RHP

08th May – Offer Opens
10th May – Bank Holiday for Buddha Pournima
11th May – Offer Closes
17th May – Finalisation of Basis of Allotment
18th May – Unblocking of ASBA
18th May – Credit to Demat Accounts
19th May – Listing on NSE & BSE

Issue Information: (FINAL)

Issue Opens on: 08 May 2017
Issue Closes on: 11 May 2017
Issue Type: Book Built Issue IPO
Issue Size: 20,40,58,747 Equity Shares
Face Value: Rs 10 per Equity Share
Issue Price: Rs.56 – Rs.60 per Equity Share (QIB & NII)
Discount: Rs.54 – Rs.58 per Equity Share (RII & Employees)
Market Lot: 300 shares
Listing At: NSE, BSE

Equity Shares outstanding prior to the Issue = 2,00,19,00,000 Equity Shares
Offer for Sale of 20,40,58,747 Equity Shares @upper price band = Rs.1209.57 Crores
Equity Shares outstanding after the Issue = 2,00,19,00,000 Equity Shares

Category-wise Break up:.
QIB – 10,00,95,000 Shares = 600.57Crs (No Anchor)
NII – 3,00,28,500 Shares = 180.17Crs
RII – 7,00,66,500 Shares = 406.39Crs (Lot size: 200 = 350,333 Forms)
Employees – 38,68,747 Shares = 22.44Crs
Total Issue – 20,40,58,747 Equity Shares = 1209.57Crs.

Subscription required for 1X
RII = 350,333 Forms
NII = 180.1714 Crs

Interest cost @6%p.a. for 7days = 65904paise for 1X

Financial Information (Basis of Valuation):

EPS for FY11-12 >>> Rs.3.1 (Page #66 of RHP)
EPS for FY12-13 >>> Rs.3.5 (Page #66 of RHP)
EPS for FY13-14 >>> Rs.3.7 (Page #66 of RHP)
EPS for FY14-15 >>> Rs.3.8 (Page #66 of RHP)
EPS for FY15-16 >>> Rs.4.0 (Page #66 of RHP)
EPS for 9M16-17 >>> Rs.2.5 (Not Annualized) (Page #66 of RHP)

RoNW for FY13-14 >>> 10.4% (Page #94 of RHP)
RoNW for FY14-15 >>> 10.0% (Page #94 of RHP)
RoNW for FY15-16 >>> 09.6% (Page #94 of RHP)

NAV as on December 30, 2016 was Rs.44.50 (Page #94 of RHP)

Peer Group (Page #95 of RHP): NONE

Market Estimates of oversubscription:


1X QIB = 600.57Crs – assuming applications of 20KCrs. = 33X oversubscription

1X NII = 180.17Crs – assuming applications of 40KCrs. = 222X oversubscription

1X RII = 350,333 Forms – assuming 15L forms. = 4.28X oversubscription (applic-wise)
i.e. average 47 shares per form

Fantastic comparrison between REC and HUDCO. Learning a lot from this forum on how to analyze companies. I always struggle a lot to analyze financial institutions and don’t even know what to look for other than some basic ratios.

While going through the investor presentation available in HUDCO website, what I found interesting was regarding their NPA, private sector contributes 61% and government sector contributes only 0.84% towards NPA. And HUDCO have decided to stop loans to priviate sector.

Hence in my opinion (I may be totally wrong) the NPA should improve in future if not to worsen further because of this decision.

I was planning to apply for the IPO, now what makes me rethink is the comprassion between REC & HUDCO, where REC PAT is 10 times more compared to HUDCO for almost same equity, and almost on every ratio REC fares better.

I kindly request the views of seniors on this to provide guidance on how to evalute further. Do we need to make more comparission with other companies.

Thanks in advance.

Equity of the two companies is nearly same, doesnt means mcap is same as well.

What will be market cap at upper band?

REC Market Cap is Rs.42660 crs and Hudco’s Rs.12011 crs. Annualised profit is 6569 crs and 695 crs respectively. PE ratio for REC is 6.5 times whereas for HUDCO at the upper band it works out to 17.65 times. Last five year compounded annual growth in income and profit for HUDCO is flat at 4% and 2%.

This analysis tells that REC and HUDCO cannot be compared , as they both give different kind of Loans .

Is there any proof to evidence this as co. in its presentation show on page 10 clearly mention 69% borrowing from tax free bonds.

Thanks for the good analysis, but the subscription rate really surprises!! any comments pls ??

1 Like

Check subscription and cmp of S Chand.

Albert einstein once told-
I can calculate distance between moon n sun but i cannot judge the madness of crowd


Sorry to correct you @sumitjain0014 , it was not Albert Einstein but Sir Issac Newton who after loosing 20000 pounds in speculating stock of south sea company said:
“I Can Calculate The Motions Of Heavenly Bodies, But Not The Madness Of People” :smiley: :wink:

Source: Intelligent Investor by Ben Graham (Father of value investing)


Rise in prices may be due to this news:

Hudco offers Rs. 3000 Crs loan for Jewar Airport

Disc: Invested

HUDCO with a loan book of of 78000 crore has gorwn at a CAGR of 15% in the last 5 years.
The housing segment forms majority of the AUM with 57%, followed by Urban Infrastructure forming 43% of the AUM and balance by HUDCO Niwas as on March 31, 2022.
HUDCO has majorly lent to the government sector forming 97% of AUM as on March 31, 2022, as it had ceased its lending towards private sector since 2013. Furthermore, 91% of gross loans as on March 31, 2022, have been secured by government guarantee leading to lower credit risk.
Highest AAA rating from ICRA and CARE.
Trading at 0.7 times P/B.
Looks a good buy at these valuations.
Could someone share some anti-thesis pointers on why it can not be re-rated to 1.2/1.5 times P/B.
D: Studying, not invested.