Recent Initial Public Offerings (IPOs) have done well and if one goes by the valuations front, the IPO of Housing and Urban Development Corporation (HUDCO) should be a good pick.
About the offer
The company will offer shares in a price band of Rs 56 to Rs 60 with the offer opening on May 8 and closing on May 11. Retail investors are being offered a discount of Rs 2, which is almost 5 per cent of the offer price. Now, this is an offer for sale and the proceeds of the sale stake would go to the government. In fact, the government presently owns 100 per cent of the equity and this would get reduced once the offer for sale goes through.
Areas of business
The company is largely engaged in two types of activities: the first is is loans for housing and the second is urban infrastructure projects. It assists housing finance companies and offers venture capital in housing and urban development sectors. Largely, the company is a housing finance company that supports the government's housing ventures. As of 31 December 2016, its total outstanding loan portfolio was Rs 363,858 million. The Urban Infrastructure Finance loans includes those for water supply, roads and transport and power.
Fundamentals of the company
HUDCO has reported an EPS of Rs 3.87. If you take the price band of Rs 56 to Rs 60 you get a price to earnings ratio of 14.5 times to 15.5 times. This is not very cheap and neither too expensive. HUDCO has a Book Value of Rs 42.14, while the Return on Networth for the corporation has been 9.18 per cent. The net interest margins of the company at 4.1 per cent are attractive, though the gross non performing assets in excess of 6 per cent is not the best.
Should you subscribe to the offer?
It is likely that you would some listing gains from the shares of HUDCO. If the shares listed at around Rs 65 to Rs 70, you could get large listing gains. You have have to hold the shares for a longer time frame, if you want higher returns. The dividend yields would ensure that investors would continue to make returns. Not a bad bet for those looking to invest.
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