Target: ₹58.50

CMP: ₹50.80

HUDCO derives significant strength from majority Govt. ownership (81.8 per cent stake) and AAA rating which provides comfort to the lenders and aids in reducing the cost of borrowing for the company. Its portfolio is relatively low risk profile given the focus on Government-sponsored urban infrastructure and social housing projects.

In longer term, we expect, demand for housing is likely to increase with the increasing urbanisation, better affordability and higher incentives provided by the Govt. This is likely to be beneficial for companies like HUDCO. The company has restricted its fresh exposures to the private sector since 2013.

We expect the loan book of the company to grow at a conservative CAGR of about 9 per cent over FY22-FY25. PAT is expected to grow at 7.3 per cent CAGR on account of higher base due to exceptional items, stable spreads and higher delinquencies. FY22 profit was aided by provision writeback of ₹246 crore lifting RoA to 2.2 per cent. The benefit of writeback might not be available in the coming years and we expect RoA to hover in 2-2.2 per cent mark.

Most of the concerns seem to be reflected in the price and the stock is available at an inexpensive valuation and offers an attractive dividend yield (FY22 dividend ₹3.50).