HUDCO With the launch of the interim budget for 2024, the Indian government declared a visionary plan to construct 2 crore houses over the next five years. This ambitious initiative is set to redefine the landscape of urban development and housing in the country. 

As the government paves the way for extensive housing projects, HUDCO, a key player in the financial support industry, finds itself at the forefront of this transformative journey.

HUDCO has given exceptional returns of 333% in the last year. Today we will understand what the company does, its industry, its loan portfolio, and future prospects.

Business Overview

Housing and Urban Development Corporation Limited (HUDCO) is a premier public sector financial institution in India, established in 1970 to facilitate urban and rural development. 

HUDCO operates under the Ministry of Housing and Urban Affairs as a wholly-owned government company. The corporation plays a pivotal role in financing various housing and infrastructure projects across the country.

HUDCO’s primary focus is on providing financial assistance for housing and urban development projects, including social housing, infrastructure development, and other related initiatives. 

Over the years, HUDCO has been a key contributor to the nation’s progress by supporting projects that enhance the quality of life for citizens and contribute to sustainable urban development.

HUDCO has a strong relationship with State Governments, reflected in higher participation in government housing and urban infrastructure programs.  HUDCO has a low-risk profile as the maximum part of the loan book consists of loans to the State Government and its agencies bearing the low risk of NPAs.
Let’s understand more about the company and look at how its loan portfolio looks like

Loan Portfolio of the company

Housing Finance

HUDCO provides financial assistance and support to enable citizens to purchase and construct their homes, thus fostering inclusive growth and addressing the crucial need for affordable housing. The housing finance segment aligns with the government’s vision of “Housing for All,” contributing to the creation of sustainable and vibrant communities.
Out of the total loan portfolio, this segment accounts for 53.90% or Rs 78,266.9 crores, with Rs 1,829.5 crore added in FY23. 

Urban Infrastructure Finance

HUDCO is a significant player in urban infrastructure finance. It funds transportation projects and supports the creation of smart cities, among other things. Its urban infrastructure finance segment plays a vital role in modernizing and improving urban living. By investing financial resources into essential infrastructure, HUDCO actively contributes to building the foundation for thriving and well-connected urban spaces.Out of the total loan portfolio, this segment accounts for 45.80% or Rs 36,982 crores, with Rs 6,627.9 crore added in FY23. 

HUDCO Niwas

This segment goes beyond just financing; it encompasses a holistic approach to home development. HUDCO Niwas offers a range of services, including consultancy, project management, and technical support. These services ensure that the entire process of creating a home is seamless and efficient. Out of the total loan portfolio, this segment accounts for 0.30% or Rs 239.7 crores, with Rs 8.6 crore added in FY23. 

Borrowers of HUDCO

As of March 31, 2023, HUDCO primarily lends money to government agencies. These government-related project loans make up a significant 97.03% of its total loan portfolio, which amounts to ₹80,503.60 crore. In other words, HUDCO is heavily involved in financing government projects, with a total funding of ₹78,113.25 crore.

In contrast, the private sector constitutes a smaller portion of HUDCO’s lending portfolio, comprising 2.97% or ₹2,390.35 crore of the total loan book. 

The company’s lending focus primarily revolves around government entities, showcasing a robust and long-standing association with various state government agencies and their parastatals.

Throughout its operational history, HUDCO has forged enduring partnerships with entities such as Development Authorities, Housing Boards, Urban Local Bodies, Water Supply & Sewerage Boards, Roads & Bridges Development Corporations, and other government-related bodies across the country. 

This strategic focus on government-associated projects underlines HUDCO’s pivotal role in supporting and facilitating public infrastructure and developmental initiatives. With this detailed overview of the business, let’s understand the key metrics that are important to measure the performance of the company.

Interpreting the Key Metrics

Some of the important key metrics, while looking at the feasibility of companies like HUDCO are Net interest margin (NIM), Gross non-performing assets (GNPA), Net non-performing assets (NNPA), and provision coverage ratio
First, let’s get an understanding of what these terms are and what they tell us.

GNPA (Gross Non-Performing Assets): GNPA represents the total amount of loans that borrowers haven’t repaid on schedule.

NNPA (Net Non-Performing Assets): NNPA reflects the actual unpaid amount by considering repayments and provisions set aside for potential losses.

PCR (Provision Coverage Ratio): PCR is a percentage indicating how well a bank is prepared for potential losses by setting aside funds compared to total unpaid loans.

Net Interest Margin (NIM): Net Interest Margin (NIM) is like the profit margin for Non-Banking Financial Companies (NBFCs) in the business of lending money. It’s the percentage difference between the interest earned on loans and the interest paid on borrowings. 

NIM reveals how well an NBFC is turning its lending activities into profits, considering the costs associated with obtaining funds.

With this let’s see how HUDCO’s performance has been in these key metrics

Key Observations

HUDCO has maintained a relatively stable and low GNPA ratio between 3-4% over the past 4 years indicating good asset quality and low default levels across its lending book.

Net NPA ratio has remained below 0.6% across the years depicting efficient recoveries and resolution mechanisms to minimize bad loan write-offs.

PCR levels have been consistently high (85-95% range) highlighting adequate provisioning levels against potential losses. The higher the PCR, the lower the unprovided portion of bad loans.

HUDCO’s NIM has shown a general declining trend from FY20 to FY23.

NIM was the highest in FY20 at 3.65% which has come down in subsequent years indicating that growth in interest expenses has been outpacing the increase in interest income year-on-year.

However, the NIM drop has been gradual indicating it is not a major source of concern yet as the cost of borrowing for NBFCs went up. Although, the metric has shown recovery signs in FY23 by posting a 6 bps increase relative to FY22.

Hope that was a useful walkthrough of how the company is doing. With that, let’s go ahead and see what are the future plans of HUDCO. 

Future Outlook

HUDCO anticipates significant expansion with India’s Rs. 111 lakh Crore investment in the National Infrastructure Pipeline. By 2024-25, a substantial 71% of this substantial investment will be allocated to sectors including energy, roads, urban development, and railways.

To minimize credit risk, emphasis is placed on approving loans for State Governments to mitigate the credit risk associated with private sector entities. A staggering 99.95% of total sanctions are directed towards State Governments and their Agencies. 

Notably, the gross NPAs for loans extended to the private sector were 86%, in stark contrast to the minimal 0.81% for loans disbursed to State Governments and their agencies

HUDCO plans to expand into smaller cities, meeting rising financing needs. Seeking more tax-free bonds, Capital Gain Bonds, and refinancing from financial institutions, the company aims to secure low-cost funding for future projects.With this, we come to the end of this detailed article on HUDCO Stock. Hope you enjoyed it and found the article insightful. Let us know what you think about it in the comments section below.

Written by Akshita Maloo

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