Why HUDCO Share Price is Rising

Sooner or later, undervalued stocks are bound to catch up with their intrinsic values.

You don't even need to determine the exact intrinsic value of the company to invest in an undervalued stock.

You only need to know if the value is in the right ballpark or if it is considerably higher or lower than the market price.

In October 2023, we covered a detailed article mentioning the top 5 undervalued stocks to watch out in 2024.

The stocks included VLS Finance, Sandesh, Gujarat State Fertilizers, Ambika Cotton, and HUDCO.

From this list, Ambika Cotton and GSFC have already moved up while VLS Finance and Sandesh are still trying to catch up.

But the stock that stands out among all is HUDCO, which has seen a significant rise in recent days.

The stock zoomed 20% today to touch a new all-time high.

In the past one month, the stock is up almost 50%, and this up move has taken its 2023 returns to a massive 123%!

Let's find out why HUDCO share price is rising and what lies ahead.

Positive Market Sentiment

There's no specific reason behind today's rally in HUDCO shares.

The rally is just fuelled by overall market sentiment, more so in PSU stocks.

You see, the current market environment is the best for government owned stocks. In the past few days, PSU stocks added more fuel to the rally as election results started pouring in key states.

If the government continues its huge capex plans at the same pace that we've seen in the recent months, the market could further award premium valuations to government stocks.

Fed Meeting Impact

On 13 December 2023, the US Fed kept rates unchanged and signalled a dovish stance.

This sparked a rally in global market which extended to Indian markets as well. Benchmark indices Sensex and Nifty spiked right at the open.

The BSE Sensex surged 1,000 points while the Nifty rose to new all-time high, crossing 21,200.

The key takeaway of Fed's meeting was clear - the rate hike cycle is coming to an end as Jerome Powell signalled three possible rate cuts in 2024.

Resultantly, this comment sparked a downfall in the US bond yields. The general perception is that when US bond yields slump, there are always better opportunities for foreign investors to put their capital.

India being a top emerging market could see large capital inflows from foreign investors.

Majority of stocks are trading in green today and HUDCO shares were locked in upper circuit as volumes spiked over 4x the normal trading volumes.

Foreign investors have increased stake in the company for the past three quarters and the current rally could just as well be because of FIIs buying more stake in it.

What Next?

Note that HUDCO has received multiple rating upgrades from agencies on the back of its robust credit profile and strong government support.

It has a low credit risk as 97% of its outstanding loans are to state governments and their related entities, which come with guarantees.

In October 2023, the stock faced some pressure after the government divested up to 7% of its stake in the state-run housing finance player through an offer for sale (OFS).

The OFS was undertaken so that the government can achieve the minimum public shareholding.

As of September 2023, the promoter or the government's holding in HUDCO stood at 81.8%. Post this stake sale, the government owns 75.2% in HUDCO.

Over the years, HUDCO has played a significant role in the implementation of its various initiatives in urban infrastructure and social housing projects.

Given the company's rising exposure to urban infrastructure, in line with the government's increased focus towards infrastructure development, the stage is perfectly setting up for HUDCO, which sanctions loans under various infrastructure schemes.

The company is also in the process of seeking fresh registration under the RBI as a housing finance company.

HUDCO also rewards shareholders consistently by making large dividend payouts. It boasts of a high dividend yield of 3.9% on its current market price.

Most of its key metrics have improved in the first half of FY24 compared to the previous year as indicated in its latest investor presentation.

While growth has remained stagnant for the past three years, the company could see improvement in full year numbers given government's focus on housing infra.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Operating Income	55,559	75,321	72,346	69,541	70,495
Growth (%)	33%	36%	-4%	-4%	1%
Operating Profit	49,390	70,281	70,004	68,864	68,078
OPM (%)	89%	93%	97%	99%	97%
Net Profit	11,799	17,082	15,785	17,164	17,014
Net Margin (%)	21%	23%	22%	25%	24%
ROE (%)	11.3	14.7	12.4	12.4	11.4
ROCE (%)	8.4	9.7	9.5	9.2	8.8
Dividend (Rs)	0.8	3.1	2.2	3.5	3.9
Debt to Equity (x)	5.5	5.0	4.6	4.3	4.1

Data Source: Ace Equity

How HUDCO Share Price has Performed Recently

HUDCO shares spiked 20% today to hit an all time high of Rs 119.4.

The stock gave up some gains and is currently trading at Rs 115, up 16%.

In the past one month, the stock has gained more than 45% while in 2023 so far, the stock is up 116%.

HUDCO has a 52-week high of Rs 119.4 touched today and a 52-week low of Rs 40.5 touched on 29 March 2023.

Here's a table comparing HUDCO with its peers.

Comparative Analysis

Company	HUDCO	Aavas Financiers	LIC Housing	PNB Housing
ROE (%)	11.4	14.3	11.1	10.1
ROCE (%)	8.8	9.6	7.6	8.3
Latest EPS (Rs)	8.9	58.8	75.7	49.3
TTM PE (x)	11.1	26.7	7.1	16.1
TTM Price to book (x)	1.3	3.5	1.0	1.4
Dividend yield (%)	3.9	0.0	1.6	0.0
Industry PE	7.9
Industry PB	1.4

Data Source: Ace Equity

To know more, check out HUDCO's financial factsheet.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...