Sharekhan IPO Flash

Housing & Urban Development Corporation Ltd

Sharekhan May 03, 2017

Housing & Urban Development Corporation Ltd

IPO flash

loans and Rs251,576.8 million, or 69.14%, were Urban

IPO details
Infrastructure Finance loans and project-linked bonds.
Issue opens May 08, 2017
Issue closes May 11, 2017 The company classifies housing finance loans into Social
Issue size Rs1,142.72 Rs1,224.35 crore
Housing, Residential Real Estate and Retail Finance,
which is branded as HUDCO Niwas (collectively,
Offer size 204,058,747 equity shares
Housing Finance). Under Social Housing, the ultimate
Offer for sale (OFS) 204,058,747 equity shares
beneficiaries of the loans are borrowers belonging to the
Face value Rs10 economically weaker sections (EWS) of the society,
200 equity shares and in multiples which is defined as families with household income of
Bid lot
thereafter Rs300,000 per annum or less, and borrowers belonging
Reservation for Reservation of up to 3,868,747 equity to the lower income group (LIG), which is defined
employees shares of Rs10 each as families with household income from Rs300,001 per
Price band Rs56 to Rs60 per equity share annum to Rs600,000 per annum. Under Residential Real
Rs2 per share for retail investors and Estate, the ultimate beneficiaries of the loans are public
Discount
eligible employees and private sector borrowers for housing and commercial
real estate projects, including land acquisition. Such
About the IPO housing and commercial real estate projects cater
primarily to the Middle Income Group (MIG) and Higher
Housing & Urban Development Corporation Ltd (HUDCO) Income Group (HIG) of society.
is coming out with an Initial Public Offering (IPO) of
Rs1142.72-1224.35 crore. The issue is priced in a band of HUDCO finances Social Housing and Residential Real
Rs56-Rs60 per share. Estate through primarily lending to State Governments
and their agencies, which, in turn, extend the finance
HUDCO promoters are proposing to offer the equity to or utilise the finance for the ultimate individual
shares of the company to the public by way of an IPO. beneficiaries. HUDCO ceased sanctioning new Social
Hence, there will not be any change in the shareholders Housing and Residential Real Estate loans to entities in
funds. the private sector in March 2013.
This offer is an Offer for Sale (OFS) of up to 204,058,747 Under HUDCO Niwas, the company provides financing to
equity shares by the President of India, acting through individuals directly and bulk loans to State Governments,
the Ministry of Housing & Urban Poverty Alleviation, their agencies and public sector undertakings (PSUs)
Government of India. for on-lending to their employees and to other Housing
Company background Finance Companies (HFCs) for on-lending to the general
public.
HUDCO is a wholly-owned Government company with
more than 46 years experience in providing loans for The company also provides consultancy services in the
housing and urban infrastructure projects in India. The area of housing and urban development. The consultancy
company has been conferred the status of Miniratna services include providing services for government housing
(Category-I Public Sector Enterprise) by the GoI. and urban infrastructure programmes. HUDCO plays a
key role in various government schemes to develop the
As at December 31, 2016, HUDCOs total outstanding Indian housing and urban infrastructure sectors, such as
Loan Portfolio was Rs363,858.2 million, of which DAY-NULM and PMAY-HFA (Urban), through the appraisal
Rs112,281.4 million, or 30.86%, were Housing Finance and monitoring of projects.
Shareholding pattern
Category of shareholders No. of shareholders Total no. of fully paid-up Shareholding as a % of
equity shares held total no. of shares
Promoter & promoter group 8 2,001,900,000 100.00
Public 0 0 0
Non promoter - non public 0 0 0
Shares underlying DRs 0 0 0
Shares held by Employee Trusts 0 0 0

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Disclosure Document issued by SEBISharekhan 1
& relevant exchanges May 03,
and the T &2017
C on www.sharekhan.com before investing.
Sharekhan IPO Flash Housing & Urban Development Corporation Ltd
Key investment rationale
Key role in various government schemes to develop
Indian housing and urban infrastructure sectors and
a very high proportion of Loan Portfolio is to State
Governments and their agencies
HUDCO plays a key role in various government schemes
to develop the Indian housing and urban infrastructure
sectors, such as DAY-NULM and PMAY-HFA (Urban), through
the appraisal and monitoring of projects. Through its
role of appraising projects under various government
schemes, HUDCO has built a strong relationship with
State Governments and their agencies. This gives HUDCO
a better chance of providing loans to those entities,
whether for projects under those schemes or otherwise.
As at December 31, 2016, Rs327,219.8 million, or 89.93%
of total Loan Portfolio, were to State Governments and
their agencies.
Highest credit ratings, access to diversified and low-
cost funding and ability to significantly increase
borrowings in compliance with the HFC directions
Domestically, HUDCO holds a credit rating of AAA, the
highest credit rating, for long-term borrowings from
CARE, ICRA and IRRPL, which lowers the companys cost
of borrowing. HUDCOs relationship with the Government
currently provides it with access to funds for a long-
term duration and at a lower cost of borrowing. It has
also enabled the company to source foreign currency
loans from bi-lateral and multi-lateral agencies, which
diversifies its lenders. Furthermore, the Government has
permitted HUDCO to issue tax-free bonds from time to
time, which are at a lower cost of interest.
Established track record, profitable since inception
and a strong financial position
HUDCO has been profitable since its inception over
46 years ago, including a profit after tax of Rs4,968.6
million (consolidated), Rs8,096.1 million (consolidated),
Rs7,683.2 million and Rs7,339.7 million for the nine
months ended December 31, 2016 and Fiscal Years of
2016, 2015 and 2014, respectively. As at December 31,
2016, HUDCO had a net worth of Rs89,082.6 million
(standalone). CRAR as at December 31, 2016 was 63.70%,
all of which was Tier 1 capital, compared to the minimum
required CRAR of 12.00% and a minimum Tier 1 CRAR of
6.00%. HUDCOs sustained performance and profitability
enabled it to earn the Miniratna (Category-I Public Sector
Enterprise) status, which was conferred in the Fiscal Year
2005.
Pan-India presence and strong relationships with State
Governments and their agencies
In addition to registered and corporate office and
research & training wing in New Delhi, HUDCO has 21
regional offices and 11 development offices, giving it a
presence in the capital city of each state (except for
Gujarat and Andhra Pradesh, where HUDCO has an office
in Ahmedabad and Vijaywada, respectively), the major
city of three Union Territories and in other cities in two
states. The regional offices are responsible for developing
business and are able to sanction loans up to a certain
Sharekhan
limit. The development offices are also responsible
for developing business, but they are not permitted to
sanction loans. The company believes that its pan-India
presence has enabled it to develop strong relationships
with State Governments and their agencies. The pan-
India presence has also enabled HUDCO to diversify the
geographical risk of its Loan Portfolio.
Experienced senior management team and a large pool
of skilled and professional employees
Members of senior management team, which includes
Senior Management Personnel, have an average of 23
years experience in the finance industry and have been
associated with the company for an average of 21 years.
As at March 31, 2017, HUDCO had 874 full-time employees
with diverse qualifications in areas such as finance,
economics, architecture, engineering, law, planning
and designing, and sociology. This large and diverse pool
of talent enables the company to better appraise loan
applications, monitor and recover loans and raise funds.
Peer comparison
There are no comparable listed companies in India
engaged in the same line of business as HUDCO. Hence,
comparison with industry peers is not applicable.
Valuation
In the IPO, HUDCO is offering equity shares at a valuation
of 1.25x and 1.34x 9MFY2017 Book Value per share at the
lower and upper end of the price band of Rs56 to Rs60
per share, respectively.
Key risks
Two of HUDCOs goals are to increase lending for Housing
Finance and the Social Housing segment, both in absolute
terms and as a percentage of Loan Portfolio, which may
result in a decrease in its Net Interest Margin if the GoI
does not allocate amounts for issuing tax-free bonds
or capital gains bonds or if the National Housing Board
(NHB) does not enter into refinancing transactions.
Significant changes by the GoI, State Governments,
the Reserve Bank of India or the NHB in their policy
initiatives, facilitating the provision of housing and urban
infrastructure and finance for the same, any decrease
in the companys involvement in government schemes or
any change in the tax incentives that the GoI currently
provides to HFCs may have an adverse effect on HUDCOs
business, financial condition and results of operations.
HUDCO has concentrations of loans to various State
Government and their agencies, the majority of which
are backed by State Government guarantees. Even
though HUDCO may be able to eventually recover the
guaranteed amounts, in the event of a default on a
loan, the company is required to recognise it as a Non-
Performing Asset (NPA), make a provision for such NPA and
may not recognise interest on such loan, which could have
a material adverse effect on results of operations and
financial condition until such time the company recovers
the amount due under the guarantee or otherwise, which
cannot be assured.
2 May 03, 2017
Sharekhan IPO Flash Housing & Urban Development Corporation Ltd

Financials
Profit and loss statement Rs cr
Particulars FY2012 FY2013 FY2014 FY2015 FY2016 9MFY2017
Income
Revenue from operations 2,737 2,863 2,951 3,347 3,253 2,613
Other income 42 59 52 81 97 65
Total revenue 2,779 2,921 3,003 3,428 3,350 2,678
Finance cost 1,629 1,567 1,702 1,775 1,907 1,509
Employee expenses 111 122 105 161 140 115
Depreciation 5 5 4 5 5 3
Other expenses 30 41 47 39 43 27
CSR expenses 21 10 11 3 5 2
Provisions on loans 352 68 168 101 401 95
Provisions on debtors/recoverables, other loans 7 2 1 3 4 0
and advances
Additional provision on loans -315 65 -160 170 -275 185
Total expenses 1,839 1,881 1,878 2,258 2,231 1,937
PBT before exceptional items 940 1,041 1,125 1,170 1,120 741
exceptional items 20 -20 5 0
PBT 940 1,061 1,105 1,170 1,125 742
Tax expense 318 361 371 402 315 245
PAT 622 700 734 768 810 497
EPS 3.1 3.5 3.7 3.8 4.0 2.5
Total dividend 140.0 150.0 100.0 100.0 100.0
Dividend tax paid 22.7 25.5 17.0 20.5 20.4
DPS 0.70 0.75 0.50 0.50 0.50

Balance sheet Rs cr
Particulars FY2012 FY2013 FY2014 FY2015 FY2016 9MFY2017
Share capital 2,002 2,002 2,002 2,002 2,002 2,002
Reserves and surplus 3,989 4,513 5,130 5,779 6,470 6,967
Shareholder's funds 5,991 6,515 7,132 7,780 8,472 8,969
Minority interest 1 1
Total borrowings 13,714 13,553 18,888 18,315 22,745 23,484
Current liabilities 6,960 5,913 3,190 5,987 3,694 2,764
Provisions 429 447 406 451 467 408
Other long term liabilities 52 104 113 73 32 34
Deferred tax liabilities 350 416 495 507 486 456
Total liabilities 27,495 26,949 30,224 33,114 35,897 36,114
Fixed assets 85 89 95 100 112 115
Investments 1,224 684 754 756 367 367
Trade receivable 13 11 10 10 4 4
Loans and advances 22,679 24,762 28,214 31,043 33,809 34,293
Cash and bank balances 2,779 697 272 285 590 387
Other current assets 716 707 879 920 1,015 949
Total assets 27,495 26,949 30,224 33,114 35,897 36,114
Number of shares 200 200 200 200 200 200
Net worth (exc capital reserve) 5,932 6,456 7,073 7,721 8,412 8,909
Total current maturities of long term debt 5,109 3,235 1,456 2,337 2,704 1,373
Total debt incl current maturities 18,822 16,788 20,344 20,652 25,449 24,856

Sharekhan 3 May 03, 2017

Sharekhan IPO Flash Housing & Urban Development Corporation Ltd

The views expressed in this report are our views only and have been arrived at after analysis of the public offering details. This is not
a recommendation under our Stock Idea category. It may/may not be included in the Stock Idea by our analysts at a later date.

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Sharekhan 4 May 03, 2017