In a significant move, during the first cabinet meeting of the newly elected administration, this decision stirred the housing industry. This initiative underscores the government’s commitment to urban development and affordable housing, aligning with broader efforts for sustainable and inclusive urbanisation. At the forefront of this movement is the Housing and Urban Development Corporation Ltd. (HUDCO), an established business with significant potential to benefit from this large-scale project.
This article examines HUDCO’s position in India’s affordable housing sector, focusing on its potential growth amid the government’s expanded housing initiatives. We also dive into the impact of recent policy changes, particularly the extension of the Pradhan Mantri Awas Yojana, on HUDCO’s business prospects, market standing, financial performance, and its role in addressing India’s urban housing challenges.
Industry Overview
The Indian housing finance market grew at a 13% CAGR from FY19-FY23, reaching ₹29 lakh crore. This is driven by multiple factors higher disposable incomes, demand from smaller cities, attractive interest rates, and government support. The market size is projected to grow at a CAGR of 24.1%, reaching USD 2,669.39 billion by 2033.
In the Union Budget 2024-25, the government proposed a ₹10 lakh crore investment over five years. This includes ₹2.2 lakh crore for the PM Awas Yojana Urban 2.0, aiming to address housing needs for 1 crore urban poor and middle-class families.
Rapid urbanisation and a growing middle class fuel the demand for affordable housing. By 2030, India’s urban population is expected to reach 40%. Which will require the annual construction of 600 to 800 million square meters of urban space. Union Minister for Housing and Urban Affairs, Hardeep Singh Puri, emphasised this during a CII webinar on Atma Nirbhar Bharat.
The government initially aimed to build 29.5 million housing units under PMAY-G and 12 million under PMAY-U by March 2022. However, this goal still needs to be met, and the deadline was extended to December 2024. The increased budget for PMAY shows the government’s commitment to housing needs, suggesting strong growth for the housing finance sector. This investment could create 1.5 million direct and 2 million indirect jobs annually.
Company Overview Of HUDCO
HUDCO, a government-owned company, has operated in housing and urban development for 54 years. It funds diverse projects through 21 regional and 11 development offices across India. HUDCO has financed 8.46 million residential units, focusing on underprivileged and low-income groups. This aligns with government initiatives, positioning HUDCO as a key beneficiary of expanded housing schemes.
HUDCO offers financial assistance for land acquisition, plot development, and various housing categories. It provides softer terms for economically weaker sections and low-income groups. These include lower interest rates and extended repayment periods. HUDCO’s expertise in project financing could accelerate construction and delivery timelines for government housing schemes.
HUDCO’s growth is closely tied to India’s urbanisation. The urban population is expected to rise from 470 million in 2021 to 600 million by 2036, reaching 40% urbanisation (World Bank Report 2022). The World Bank estimates that Indian cities will need USD 840 billion for urban infrastructure and services by 2036.
Furthermore, the National Infrastructure Pipeline (NIP) Report highlights India’s substantial infrastructure needs. From 2020 to 2025, the country needs to secure ₹111 trillion for various projects, including ₹19.19 trillion specifically allocated for urban development.
As urbanisation and investment needs grow, HUDCO’s business potential looks promising, especially as it transitions from a Housing Finance Company (HFC) to a Non-Banking Financial Company-Infrastructure Finance Company (NBFC-IFC) under new RBI regulations.
Effects Of Policy Change
The resumption of construction under the older PMAY scheme, coupled with the ongoing PMAY-Urban Interest Subvention scheme (set to end in December 2024), creates a multi-year growth runway for HUDCO. The company’s extensive experience in financing both urban and rural housing projects aligns perfectly with the government’s dual focus on PMAY-Urban and PMAY-Gramin schemes.
Moreover, the policy emphasis on completing already sanctioned homes (11.8 million under PMAY-Urban, with 8.5 million completed) presents immediate opportunities for HUDCO. The company’s role in providing funding to state governments and urban local bodies for meeting margin money requirements in government schemes could see increased traction.
The policy change is also likely to spur demand for HUDCO’s other services, such as land acquisition financing and slum rehabilitation funding, as state governments and urban local bodies gear up to meet the ambitious housing targets.
HUDCO, as of July 24, 2024, boasts a market capitalization of ₹62,739 crore. Over the past year, its stock has surged by an impressive 142%, achieving a year-to-date high of 167%.
Financial Highlights Of HUDCO
Net Interest Income (NII) grew 9.6% year-over-year from ₹2,575 crore in FY23 to ₹2,823 crore in FY24, driven by HUDCO’s focus on affordable housing and urban development projects.
Disbursement In 2024, disbursements surged significantly by an impressive 112.46%, rising from 8,466 in the previous year to 17,987. This substantial growth indicates a potential rise in HUDCO’s lending activities.
Loans & Asset quality during 2024 significantly improved, with the net NPA ratio dropping to 0.36%. The year-on-year NPA decreased from ₹407.25 in 2023 to ₹329.96 in 2024. This suggests that HUDCO’s loan portfolio quality is improving.
Financing profit margin remained stable at 35% in FY24, demonstrating HUDCO’s consistent operational efficiency despite the changing market dynamics and increased competition in the affordable housing finance sector.
Net Profit Margin improved from 24% in FY23 to 27.2% in FY24,. This is an increase from ₹1,701 crore to ₹2,117 crore. This growth in profitability reflects HUDCO’s effective cost-management strategies and its ability to capitalise on the expanding affordable housing market.
Return on equity increased from 11.38% in FY23 to 13% in FY24, indicating HUDCO’s improved profitability and making it attractive to investors.
Target Prices
MOFSL: The brokerage has assigned a “BUY” rating to HUDCO with a target price of ₹344. According to their analysis, there is potential for growth in the company as revenue is rising by leaps and bounds. Secondly, the real estate sector is in a bull run.
Axis Direct: The brokerage has set a target price of ₹358 for HUDCO. This indicates optimism about the company’s performance and growth potential for the future.
Conclusion
As India embarks on this transformative journey towards inclusive housing, HUDCO emerges as a key enabler and potential major beneficiary. The company’s established infrastructure, financial prowess, and aligned vision with government initiatives position it uniquely to capitalise on the growing opportunities in the affordable housing sector.
However, the road ahead is not without challenges. HUDCO must navigate project complexities, manage credit risks in low-income housing, and adapt to evolving regulations. The company needs to innovate, streamline processes, and forge strategic partnerships. These actions are crucial to harnessing the potential of the government’s ambitious housing schemes.As HUDCO stands at this inflexion point, backed by strong government initiatives and increased investor confidence, it has the potential to not only significantly expand its business but also play a pivotal role in realising India’s dream of housing for all.
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