HUDCO, or Housing and Urban Development Corporation Ltd, is a state-owned company that provides loans for housing and urban infrastructure projects in India. The company has been in the news recently for its sharp decline in share price, which fell by 14% in the last five trading sessions. What are the reasons behind fall of HUDCO stock and what are the implications for the investors?
Reason For HUDCO Stock Fall
The main trigger for the fall was the announcement of the government’s stake sale in HUDCO through an offer for sale (OFS) on October 18, 2023. The government decided to sell up to 7% of its equity share capital in HUDCO, which amounts to 14.01 crore shares, at a floor price of Rs 79 per share. The floor price was at a 12% discount to the closing price of Rs 89.92 on October 17, 2023. The OFS was open for non-retail investors on October 18, and for retail investors and non-retail investors who chose to carry forward their bids on October 19.
Also Read: HUDCO Share Price
The OFS was part of the government’s disinvestment plan to raise Rs 1.75 lakh crore in the current fiscal year. The government owns 81.81% stake in HUDCO, and the sale of 7% stake would help it raise about Rs 1,100 crore. The stake sale would also help the government comply with the minimum public shareholding norm of 25%, as mandated by SEBI.
The market reacted negatively to the OFS announcement, as it indicated a supply overhang and a valuation pressure on HUDCO’s shares. The stock plunged by 9.51% to Rs 81.22 on October 18, and further by 4.77% to Rs 77.35 on October 19, hitting its lowest level since June 2023. The stock recovered marginally by 0.39% to Rs 77.65 on October 20, but still remained below the floor price of the OFS.
Role of OFS (Offer For Sale) in HUDCO Stock Fall
The OFS also overshadowed HUDCO’s strong financial performance in the second quarter of FY24, which was declared on October 18. The company reported a net profit of Rs 908 crore, up by 37% year-on-year, on a revenue of Rs 5,036 crore, up by 13% year-on-year. The company also declared a second interim dividend of Rs 140 per share for FY24.
The investors who are interested in HUDCO’s shares may find some value at the current levels, as the stock offers an attractive dividend yield of 4.87% and trades at a reasonable price-to-earnings ratio of 9.12. The company has a strong presence in the housing and urban development sector, which is expected to grow at a robust pace due to favourable policies, rising urbanisation and increasing environmental awareness. The company also has a healthy balance sheet, with zero debt and high cash flows.
However, the investors should also be aware of the risks and challenges that HUDCO faces, such as competition from other housing finance companies, regulatory uncertainties, exposure to stressed sectors and projects, and dependence on government support and subsidies. Moreover, the stock may witness some volatility and fluctuations due to the OFS outcome and the market sentiment.
Disclaimer: This blog post is for informational purposes only and does not constitute investment advice. Readers are advised to do their own research before making any investment decisions.
