Five-Minute Analysis of HUDCO Shares
(Disclaimer: This is just for information purposes only; this is not an investment recommendation. Prospective investors should consult their investment advisors before making any trades.)
Equity shares of Housing & Urban Development Corporation Limited (HUDCO) are listed on BSE Limited and NSE (National Stock Exchange of India) Limited. Here is a brief analysis of HUDCO shares:
- Government of India owns 81.8% equity and LIC of India 5.8%; totaling 87.6% virtual ownership by the government
- free float is only 12.4%; price charts used by technical analysts are useless with such low free float
- low free float also means high possible manipulation by unscrupulous operators--but as this is 87.6% government-owned, there is little scope for manipulation
-
it's a AAA-rated company; not because its profitability and business
operations are excellent; but only because of implicit sovereign backstop emanating from GOI ownership of HUDCO
- it's a nodal agency for government projects for social housing and urban infrastructure; as such, the projects are on relatively safer ground (low credit risk) which is reflected in low gross and net NPA ratios of HUDCO
- gross and net NPA ratios are 4.9% and 1.1% respectively as on 31Dec2021
- it's a preferred lender for state government projects and public sector agencies
- of the total loan book, a whopping 97% is to the public sector
-
government projects mean low profit margin and late realisations; creating
cash flow problem for HUDCO; this is creating pressure on interest
coverage ratio
- its capital adequacy ratio is high at 65%; with comfortable capital to grow its advances portfolio in future
- as it's a GOI company, there is a scope for government to arm twist the company to meet government's political needs; which may not be in alignment with the needs of shareholders
-
HUDCO undertakes some projects for state governments; like, Andhra
Pradesh and Telangana; the company could face problems with regard to
timely realisations of monies from state governments; financial profile
of several state governments is weak now
- there is a regulatory overhang on the company; as of now, the company does not meet Reserve Bank of India's norms to become a housing finance company (HFC, part of NBFC); HUDCO is seeking extension for meeting regulatory norms; future re-financing window from National Housing Bank (NHB) is also doubtful
- profitability is low; return on capital employed (ROCE) is just 11%, which is below cost of capital
- its price to book value is deceptively low at 0.53; because market seems to be finding the company's shares less attractive
- gross advances have remained stagnant in the past three years; which means its new loan disbursements have fallen in recent years as it's unable to fund new projects
- its current market price is Rs 36.50 per share; with a market cap of Rs 7,300 crore
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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