HOUSING & URBAN DEVELOPMENT CORPORATION LIMITED
Know the Company
Housing & Urban Development Corporation Ltd (HUDCO) was established in 1970 by the Government of India under the Ministry of Housing and Urban Affairs. In April 2024, it was bestowed with Navratna status. As of March 31, 2023, the Government of India holds a 75% stake in HUDCO, and the remaining portion owned by the public.
OPEN AN ACCOUNT
Invest in stocks curated and picked by our research team.
HUDCO’s principal objective is to provide enduring support for housing and urban infrastructure projects through financial assistance and technical expertise. The Company offers financial and expert assistance to government agencies, local authorities, and private sector entities which all are involved in urban development projects such as housing, water supply, sanitation, roads, Airports, bridges, etc. HUDCO has been exclusively executing projects for central and various state government agencies, resulting in more than 95% of the company’s portfolio relying on the government sector. As of December 31, 2023, approximately 51% of its loan book was allocated to social housing, while urban infrastructure projects accounted for the remaining 49%. To provide financial assistance, HUDCO raises funds from various sources, including domestic and international markets, by issuing bonds, debentures, and loans.
Strengths
HUDCO is a Schedule-A Mini Ratna Central Public sector enterprise with a legacy of over five decades, serving as a premier financial organization in the housing and urban development sector. The Company plays a pivotal role as a nodal agency in implementing government policies, particularly in high-priority sectors such as social housing and urban infrastructure. It plays a significant role in promoting affordable housing initiatives in India. In addition to providing financial assistance, HUDCO also offers technical expertise and consultancy services to its clients for project planning, design, and implementation. Apart from this, the company has entered into a Memorandum of Understanding (MoU) with NBCC (India) Ltd to enhance consultancy services, asset monetization, and corporate social responsibility initiatives. HUDCO boasts a diverse pool of resources to facilitate its functions, encompassing expertise in finance, law, design, civil engineering, information technology, economics, public relations, and more. It operates throughout India via a network comprising 21 regional offices and 11 development offices.
HUDCO serves as the principal agency for executing governmental initiatives in priority sectors such as social housing and urban infrastructure. Through its provision of loans at subsidized interest rates, it actively nurtures the advancement of housing projects tailored to accommodate low and middle-income demographics. The Union budget announced in February 2024 earmarked the allocation of resources for the construction of an additional 2 crore affordable houses, that significantly bolsters HUDCO’s standing due to its substantial involvement in financing affordable housing endeavors.
HUDCO has a high share of disbursement to government-backed projects and public sector agencies. As per the ICRA Research, the public sector loan book accounted for little over 97% of the company’s total advances as on FY2023 as against 91% as of FY2017. Further, ICRA notes that the majority of HUDCO’s advances in the public sector loan book are backed by guarantees or budgetary allocations of the Central or state governments. This helps mitigate the credit risk for the company to some extent, even if the underlying projects may lack sufficient cash flows for servicing its debts.
Industry Developments
The substantial increase in allocation for the Pradhan Mantri Awaas Yojana (both Urban and Rural) by 66% to over Rs 79,000 crore, as announced in the Union Budget 2023-24 provides a positive impact on housing activities across the country. Considering HUDCO’s significant involvement as a key partner in numerous housing schemes undertaken by various state governments, the company stands to benefit considerably from this development.
HUDCO remains committed to financing Social Infrastructure Projects such as health centers, government hospitals, and medical colleges, as state governments require significant funding to expand their healthcare infrastructure. Additionally, HUDCO will prioritize funding for Urban Metro Rail projects in all major cities, aligning with the government’s objective of expanding the metro network nationwide and seeking external participation for these endeavors.
Sectoral Overview and Government’s Policy Initiatives
One of the key catalysts for India’s sustained economic growth is the ongoing substantial investment in the real estate sector. This sector not only generates significant income and employment opportunities but also exerts strong multiplier effects through its forward and backward linkages with other industries in the economy. The Government of India’s commitment to ‘infrastructure-led economic growth’ is underscored in the Union Budget 2023-24, with a notable 33% increase in the capital investment outlay for infrastructure, totaling Rs 10 lakh crore.
Moreover, there is a push for states and cities to implement urban planning reforms and initiatives aimed at transforming cities into sustainable urban centers for the future. To bolster urban infrastructure development in Tier 2 and Tier 3 cities, the government has established the Rural Infrastructure Development Fund alongside the Urban Infrastructure Development Fund, managed by the National Housing Bank. These funds, derived from the priority sector lending shortfall, will be utilized by public agencies to create essential urban infrastructure. Additionally, the allocation for the Pradhan Mantri Awas Yojana (PMAY) has been increased by 66%, as announced in the Union Budget speech for 2023-24.
Financials
For the Q3FY24, HUDCO reported 104% growth in Net Profit (YoY) to Rs 519 crore over Rs 254 crore in the same quarter of the previous financial year. Revenue from Operations for the period also surged to Rs 2013 crore from Rs 1710 crore. For the first nine months of the year (9MFY24), Net Interest Margin was at 3.18% versus 3.16% for the same period last year.
Asset quality of the Company also remains strong as the gross and net stage-3 asset percentages stood at 3.1% and 0.4%, respectively for the nine months ended on December 31, 2023. Moreover, the company’s operating expenses remained minimal at 0.4% of average managed assets in the first nine months of FY2024, compared to 0.5% in FY2023, attributable to the wholesale nature of its operations.
Concerns
The overall economic growth trajectory and prevailing interest rate conditions can wield a substantial influence on HUDCO’s revenue streams, asset quality, and profitability.
HUDCO faces mounting competition from both the banking sector and other financial institutions, which often have access to more cost-effective funding sources. The escalating competition underscores the pressure on HUDCO’s business operations and margins.
Opportunities and Outlook
HUDCO’s growth prospects are widely linked to India’s urbanization trend. Furthermore, as urbanization increases, it not only drives the demand for housing but also supporting for other infrastructure projects such as roads, bridges, water supply, sewage systems, and more. HUDCO’s expertise in financing both housing and urban infrastructure positions helps to capitalize on the opportunities arising from India’s rapid urbanization trend. Additionally, according to the National Infrastructure Pipeline (NIP) report, the total capital expenditure requirement in India’s infrastructure sectors from fiscal 2020 to 2025 is estimated to be around Rs 111 trillion. This figure covers approximately Rs 19.19 trillion allocated for urban infrastructure projects, including those focused on affordable housing initiatives.
The Government of India’s emphasis on ‘infrastructure-led economic growth’ is poised to deliver substantial momentum to the country’s economic expansion. The sustained rise in urbanization, propelled by India’s robust demographic advantage and the growing number of double-income families, along with the subsequent surge in investments in housing and urban infrastructure sectors, presents a significant opportunity for the Company.
All macroeconomic indicators point to a robust growth trajectory for the Indian economy in the foreseeable future. Additionally, the government has been implementing various policy measures aimed at promoting orderly and sustainable urbanization while facilitating a steady inflow of investments into the housing and urban infrastructure sector. These initiatives indicate a reasonably strong long-term business outlook for the Company.
HUDCO aims to achieve assets under management (AUM) exceeding Rs 1.5 lakh crore by FY2026, a significant increase from the current level of over Rs 84,000 crore. The Company’s CMD has stated that the long-term objective is to reach an AUM of Rs 5 lakh crore by 2030, an ambitious target, envisioning nearly six-fold increase in AUM within six years. Additionally, the Company’s management anticipates that the net interest margin (NIM) will remain within the range of 3.0% to 3.5%, with spreads expected to be between 1.75% and 2.0%. HUDCO’s CMD also emphasized that the Company is actively addressing three key aspects, such as Reducing the cost of funds, Resolving stressed assets, and Expanding its diversified loan portfolio.
Sector: Financial Services
Market Price: Rs. 224.90 as on today
FV: ₹10/-
Stock Name: Housing & Urban Development Corporation Ltd
BSE Code: 540530, NSE Code: HUDCO
Market Cap.: Rs 45660 Cr.
Book Value: Rs. 78.5
Segment: Financial Institution -Govt Sector
Incorporation: 1970
Headquarters: New Delhi
