Housing and Urban Development Corporation Ltd.

Transcription

1 IPO Note: Housing and Urban Development Corporation Ltd. Industry: Housing Finance Recommendation: Subscribe Date: May 05, 2017 Issue Snapshot Company Name Housing and Urban Development Corporation Ltd. Issue Opens May 08, 2017 to May 11, 2017 Price Band Rs. 56 to Rs. 60 Bid Lot 200 Equity Shares and in multiples thereof. Discount Retail investors and eligible employees will get Rs 2 discount on the final offer price. The Offer Public issue of 204,058,747 Equity shares* of Face value Rs. 10 each, (Offer for Sale of 204,058,747 Equity Shares (Rs cr*) by Selling Shareholder). Issue Size Rs Crore IPO Process 100% Book Building Face Value Rs Exchanges NSE & BSE BRLM IDBI Capital Markets & Securities Limited, ICICI Securities Limited, Nomura Financial Advisory and Securities (India) Private Limited and SBI Capital Markets Limited. Registrar Alankit Assignments Limited Objects of the Offer Offer for Sale The Company will not receive any proceeds from the Offer for Sale by the Selling Shareholder. The objects of the Offer is to carry out the disinvestment of 10.19% Equity Shares by the Selling Shareholder and to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Issue Break up Issue Size Allocation Equity Shares* QIB 50% 100,095,000 HNI 15% 30,028,500 RII 35% 70,066,500 Total Public 100% 200,190,000 Employee 3,868,747 Total 204,058,747 Based on higher price Rs. 60 Note: Retail investors and eligible employees will get Rs 2 discount on the final offer price. Company Highlights Housing and Urban Development Corporation (HUDCO) is a wholly-owned government company with nearly 46 years of experience in providing loans for housing & urban infrastructure projects in India. Conferred the status of Miniratna (Category-I) by the government, it offers housing finance & urban infrastructure loans primarily to state governments & their agencies which constituted 89.9% of its loan book as on 9MFY17. HUDCOs total sanctioned loans since inception stood at Rs. 1,631.4 bn, of which Rs bn (39.0%) were housing finance loans and Rs.1,029.1 bn (61.0%) were urban infrastructure finance loans as on 9MFY17. Its total outstanding loan portfolio was Rs bn during the same period, comprising of Rs bn (30.9%) in housing finance loans and Rs bn (69.1%) in urban infrastructure finance loans & project-linked bonds. It also provides consulting services for government housing & urban infrastructure programmes, such as DAY-NULM, JNNURM & PMAY-HFA (Urban), through the appraisal & monitoring of projects. It advises on urban & regional planning, design & development and environmental engineering. 1

2 HUDCO classifies housing finance loans into social housing, residential real estate and retail finance, which is branded as HUDCO Niwas (collectively, Housing Finance ). Under social housing, the ultimate beneficiaries of the loans are borrowers belonging to the economically weaker sections ( EWS ) of the society, which is defined as families with household income of Rs. 300,000 p.a. or less, and borrowers belonging to the lower income group ( LIG ), which is defined as families with household income from Rs. 300,001 p.a. to Rs. 600,000 p.a. Under residential real estate, the ultimate beneficiaries of the loans are public and private sector borrowers for housing and commercial real estate projects, including land acquisition. Such housing and commercial real estate projects cater primarily to the middle-income group and high-income group of society. HUDCO finances social housing and residential real estate through primarily lending to State Governments and their agencies, which, in turn, extend the finance to or utilise the finance for the ultimate individual beneficiaries. Under HUDCO Niwas, they provide financing to individuals directly and bulk loans to State Governments, their agencies and PSU s for on-lending to their employees and to other HFCs for on-lending to the general public. With respect to Urban Infrastructure finance, they make loans for projects relating to: water supply; roads and transport, which includes railways and ports; power; emerging sectors, which includes SEZ s, industrial infrastructure, gas pipelines, oil terminals and telecom sector projects; commercial infrastructure and others, which includes shopping centres, market complexes, malls-cum-multiplexes, hotels and office buildings; social infrastructure and area development; and Sewerage, drainage and solid waste management (collectively, Urban Infrastructure Finance ). Their borrowers under Urban Infrastructure Finance are primarily State Governments and their agencies. HUDCO has established a pan-india presence with southern & northern markets comprising 54.2% & 21.8% of its loan portfolio as on 9MFY17. A significant advantage the company enjoys is the quality of financial guarantees & security of its loan portfolio, enabling it to retain AAA rating on its long term borrowings across all credit rating agencies. It is also one of the few companies that can raise money from the debt markets through the tax free bond route which actually forms the majority portion of its debt. Strong investor appetite for these tax free bonds combined with its high ratings has enabled HUDCO to access a diversified & lower-cost funding base, with its average cost of interest bearing securities standing at 7.97% as on 9MFY17. This helps to more than offset the lower interest rates charged on social housing loans which comprised 21.3% of total loan portfolio as on 9MFY17. HUDCO's loan book has grown at a CAGR of 17% since FY14-FY17(annualized).The company clocked net interest income of Rs.13.6 bn & Rs.11.1 bn during FY16 & 9MFY17 respectively and NIM of 4.1 % & 4.3% during the same period. This enabled HUDCO to earn decent return ratios of 2.4% & 1.8% ROA during the same period and 10.0% ROE in FY16. While net earnings grew at 7% CAGR between FY12 and FY16, for 9MFY17, the profitability has moderated due to a jump in total loan provisions from Rs 129 cr in FY16 to Rs cr. The provisions were because of ageing of NPA s, especially from the private sector portfolio which currently bears a gross NPA ratio of 5.98% as against 0.75% for loans made to state governments. With incremental sanctions to private sector having stopped since the past 4 years, the bad asset ratio and provisions could peak in the next one year. 2

3 View HUDCO s dual focus toward infrastructure development & housing finance would be beneficial for the company in the coming years as these sectors have emerged to be of prime focus for the government. With ~90% exposure of its loan portfolio coming from state governments & their agencies, it has managed to maintain its AAA rating and gain access to a diversified & low cost funding base. HUDCO is available at 1.3x P/B value at its upper price band. HUDCO IPO is attractively priced considering its long standing relationships with state governments, comfortable NIM & debt position, ability to raise funds from a wide variety of institutional & non institutional sources, healthy asset quality & prudent approach. We thereby recommend a SUBSCRIBE on HUDCO IPO from a long term perspective. 3

4 Financial Statement (In Rs. Cr) FY12 FY13 FY14 FY15 FY16 9MFY17 Share Capital Net Worth Long Term Borrowings Other Long Term Liabilities Short-term borrowings Other Current Liabilities Long-term Loans & Advances Other Non Current Assets Short Term Loan & Advances Other Current Assets Total Assets Interest Income Finance Cost Net Interest Income Revenue Growth (%) (2.8) Net Profit Net Profit Margin (%) Earnings Per Share (Rs.) Return on Networth (%) Net Asset Value per Share (Rs.) , Ashika Research Cash Flow Statement (In Rs. Cr) FY12 FY13 FY14 FY15 FY16 9MFY17 Cash flow from Operations Activities (896.2) (3663.2) (182.3) (4967.6) Cash flow from Investing Activities (80.3) (12.6) (5.8) Cash flow from Financing Activities (2181.9) (711.9) Net increase/(decrease) in cash and cash equivalents (368.1) (49.6) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Comparison with listed industry peers There are no comparable listed companies in India engaged in the same line of business as the Company, hence comparison with industry peers are not applicable. 4

5 Key Financial and Operational Indicators (In Rs. Cr) 9MFY17 (S) FY16 (S) FY15 FY14 Revenue from operations 2, , , ,950.7 Profit after tax Net interest income 1, , , ,252.4 Net worth 8, , , ,073.1 NoF (Net Owned Fund) 8, , , ,987.0 Total borrowings 24, , , ,304.8 Profitability ratios: NIM 4.26% 4.11% 5.18% 4.59% Average yield on average interest-earning assets 10.07% 9.81% 11.01% 10.81% Average cost of interest bearing liabilities 7.97% 7.70% 7.91% 8.43% Spread 2.10% 2.11% 3.10% 2.37% Cost to income ratio 13.08% 13.72% 12.88% 12.11% Return on average assets (after tax) 1.84% 2.35% 2.43% 2.57% Return on equity 7.59% 9.98% 10.30% 10.76% Regulatory capital ratios: CRAR 63.70% 63.85% 50.46% 27.85% Asset quality ratios: Provision coverage ratio 78.98% 70.56% 75.75% 64.41% Gross NPAs to total Loan Portfolio 6.80% 6.68% 6.25% 6.76% Net NPAs to total Loan Portfolio 1.51% 2.06% 1.59% 2.52% Loan Type Average Loan Size (Rs. Cr.) Average Residual Tenure (Yrs) Housing Finance Loan Portfolio % Urban Infrastructure Finance Loan Portfolio % Total Loan Portfolio % Average loan size and average residual tenure for Housing Finance Loan NIM (In Rs. Cr) 9MFY17 (S) FY16 (S) FY15 FY14 Segment wise revenue Housing Finance % % % % Urban Infrastructure Finance % % % % Consultancy services % % % % Other income from operations % % % % Total revenue from operations % % % % Total Loan Portfolio detail As at December 31, 2016 As at March 31, 2016 As at March 31, 2015 As at March 31, 2014 Housing Finance % % % % Urban Infrastructure Finance % % % % Total Loan Portfolio % % % % 5

6 Research Team Name Designation ID Contact No. Paras Bothra President Equity Research Krishna Kumar Agarwal Equity Research Analyst Partha Mazumder Equity Research Analyst Arijit Malakar Equity Research Analyst Kapil Jagasia, CFA Equity Research Analyst Tirthankar Das Technical & Derivative Analyst Ashika Stock Broking Limited ( ASBL ) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking services, depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and distributed by ASBL in the sole capacity of a Research Analyst (Reg No. INH ) of SEBI (Research Analyst) Regulations ASBL is a wholly owned subsidiary of Ashika Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is enumerated on our website is an integrated financial service provider inter alia engaged in the business of Investment Banking, Corporate Lending, Commodity Broking, Debt Syndication & Other Advisory Services. There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years. Disclosure ASBL or its associates, its Research Analysts (including their relatives) may have financial interest in the subject company(ies). However, the said financial interest is not limited to having an open stock market position in /acting as advisor to /having a loan transaction with the subject company(ies) apart from registration as clients. 1) ASBL or its Research Analysts (including their relatives) do not have any actual / beneficial ownership of 1% or more of securities of the subject company(ies) at the end of the month immediately preceding the date of publication of this report or date of the public appearance. However ASBL's associates may have actual / beneficial ownership of 1% or more of securities of the subject company(ies). 2) ASBL or their Research Analysts (including their relatives) do not have any other material conflict of interest at the time of publication of this research report or date of the public appearance. However ASBL's associates might have an actual / potential conflict of interest (other than ownership). 3) ASBL or its associates may have received compensation for investment banking, merchant banking, and brokerage services and for other products and services from the subject companies during the preceding 12 months. However, ASBL or its associates or its Research analysts (forming part of Research Desk) have not received any compensation or other benefits from the subject companies or third parties in connection with the research report. Moreover, Research Analysts have not received any compensation from the companies mentioned herein in the past twelve months. 4) ASBL or their Research Analysts have not managed or co managed public offering of securities for the subject company(ies) in the past twelve months. However ASBL's associates may have managed or co managed public offering of securities for the subject company(ies) in the past twelve months. 5) Research Analysts have not served as an officer, director or employee of the companies mentioned in the report. 6) Neither ASBL nor its Research Analysts have been engaged in market making activity for the companies mentioned in the report. Disclaimer The research recommendation and information herein are solely for the personal information of the authorized recipient and does not construe to be an offer documents or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not for public distribution or use by any person or entity, where such distribution, publication, availability or use would be contrary to law, regulation or subject to any registration or licensing requirement. We will not treat recipients as customer by virtue of their receiving this report. The report is based upon the information obtained from public sources that we consider reliable, but we do not guarantee its accuracy or completeness. ASBL shall not be in anyways responsible for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this report should rely on their own investigations. 6