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HUDCO shares may rise to ₹375, says Nirmal Bang while projecting a 15% upside

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Brokerage firm Nirmal Bang has initiated coverage on state-run Housing and Urban Development Corporation Ltd. (HUDCO) with a “buy” rating and a price target of ₹375, which implies a potential upside of 15% from Friday’s closing levels. This is the second initiation on the stock after Elara Capital had initiated coverage earlier this year.The initiation comes after the stock has surged over 490% in the last 12 months.

Nirmal Bang called HUDCO a “niche financier” in the social housing and urban infrastructure space. It said that it has a strong relationship with state governments and their agencies, which gives it a better chance of disbursing loans to these entities.

HUDCO has not lent to the private sector since 2013 and has a 100% provision on legacy private sector NPAs. Nirmal Bang expects credit costs to remain lower in the future as 97.5% of its loan book is exposed to central and state governments, which is a stable asset class, leading to an expansion in the company’s Return on Assets (RoA). “Since majority of the exposure is government guaranteed, it mitigates the risk to an extent,” the note said.
HUDCO was also recently conferred the “Navratna” status and is also in the process of converting from a Housing Finance company to an NBFC. Reports also suggest that HUDCO has applied to the Ministry of Finance to be included under section 54EC of the Income Tax Act, which will further reduce borrowing costs in case it materialises.Nirmal Bang expects HUDCO’s Net Interest Margin to increase to 3.5% in financial year 2026 from the current 3.2% due to increased lending to the urban infrastructure segment, which carries better yields, and a higher degree of low-cost borrowing.

“In our view, due to its niche position in social housing & urban infrastructure financing, its ability to grow faster due to its robust capital position, improving margins and low risk on balance sheet, the company’s premium valuations should sustain,” Nirmal Bang wrote in its note.

HUDCO will also be classified as a “midcap” stock from its earlier category of “smallcap”, as per AMFI’s latest category revision of stocks.

Elara had earlier initiated coverage on HUDCO with a price target of ₹297, which it later revised higher to ₹350 towards the end of June.

Shares of HUDCO have risen 6.3% higher at ₹349. The stock is up 170% so far in 2024.

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