Recommendation from Finance Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

Housing & Urban Development Corp. Ltd.: FUNDING INDIA’S INFRASTRUCTURE TRANSFORMATION

HERE IS WHY
✓  Supporting PMAY, AMRUT, Smart Cities
✓  Record high loan book growth momentum
✓  Improving asset quality and low NPAs

The government’s vision of transforming India into a USD 10 trillion economy by 2030 and achieving Viksit Bharat by 2047 is expected to create significant demand for infrastructure funding. In the recent Union Budget, ₹11.21 lakh crore has been allocated to the infrastructure sector. The PMAY 2.0 planned for 2024 to 2029 aims to benefit one crore poor families, with a total budget of around ₹2.30 lakh crore. According to CRISIL, India’s infrastructure spending is projected to double to ₹143 lakh crore between FY24 and FY30, compared to the ₹67 lakh crore spent during FY17 to FY23. Considering these factors and the growth outlook for India’s infrastructure and housing sectors, we recommend Housing & Urban Development Corporation Ltd (HUDCO) as our Choice Scrip for this issue.

Established in 1970, HUDCO is primarily engaged in financing housing and infrastructure development across India. It operates as a financial institution offering funding, consultancy, and capacity-building support for a wide range of housing and infrastructure projects. In Q4FY25, on a consolidated basis, revenue of the company increased by 37.83 per cent YoY to ₹2,829.86 crore compared to ₹2,053.12 crore from the previous year’s same quarter.

On a sequential basis, revenue increased by 3.07 per cent. PBIDT excluding other income increased by 39.67 per cent to ₹2,873.10 crore YoY as compared to ₹2,057.08 crore from the previous year’s same quarter. Net profit stood at ₹727.74 crore compared to ₹700.16 crore, a YoY increase of 3.94 per cent, while sequentially decreased by 0.99 per cent from ₹735.03 crore.

In FY25, HUDCO reported loan sanctions of ₹1.27 lakh crore, up 55 per cent from ₹82,387 crore in FY24, reflecting strong scale-up. Loan disbursements more than doubled to ₹40,000 crore, rising 122 per cent from ₹17,987 crore. Outstanding loans stood at ₹1.25 lakh crore, marking a 35 per cent increase over the previous year. From the total disbursements, 61.15 per cent were towards urban infrastructure and 38.85 per cent towards affordable housing. Notably, 98.47 per cent of HUDCO’s loan book is to various government entities.

In FY25, 96.52 per cent of new loan sanctions were for urban infrastructure projects, signalling HUDCO’s strategic pivot towards this segment. Earlier classified as a Housing Finance Company, HUDCO was reclassified by the RBI in August 2024 as an NBFC-IFC, enabling broader financing across infrastructure domains like roads, metro projects, smart cities, AMRUT, ports, and airports.

On the asset quality front, net NPA improved to 0.25 per cent from 0.36 per cent. Net interest margin rose to 3.22 per cent from 3.18 per cent, while yields improved to 9.5 per cent from 9.04 per cent. EPS increased by 28 per cent to ₹13.53 from ₹10.57.

On the valuation front, the shares of the company are trading at a PE of 18.2x, against the industry PE of 20.8x. The company has a three-year ROE of 13.5 per cent and ROCE of 9.22 per cent. Company dividend yield stands at 1.68 per cent. The company's three-year sales growth and profit growth stand at 13.9 per cent and 16.4 per cent respectively. Considering HUDCO’s strong fundamentals, government backing, improving financials, and infrastructure-led growth opportunity, we recommend a BUY.