Housing and Urban Development Corporation Limited (HUDCO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Housing and Urban Development Corporation Limited Q2 FY '27 Earnings Conference Call hosted by Ashika Institutional Equities. Please note that this call is being recorded. I now hand the conference over to Ms. Rati Pandit from Ashika Institutional Equities. Thank you, and over to you.

Thank you, Yash. A very good afternoon to everyone. On behalf of Ashika Institutional Equities, we welcome you all to the Q2 FY '27 Earnings Conference Call of Housing and Urban Development Corporation Limited. We are pleased to host the senior management of the company represented by Shri Sanjay Kulshrestha, Chairman and Managing Director; Shri M. Nagaraj, Director, Corporate Planning; Shri Daljit Singh Khatri, Director, Finance; and Shri Achal Gupta, Executive Director, Finance. I now hand over the call to Chairman, sir, Shri Sanjay Kulshrestha for his opening remarks, post which we can have the floor open for Q&A. Thank you, and over to you, sir.

Thank you, Rita. Good afternoon, friends. At the outset, I will extend my warm greetings to all the investors and the stakeholders. I also take the opportunity to wish everyone a very happy and prosperous Diwali. May the festival brings happiness, prosperity and new. So if you see the journey of the during last 2, 3 years, the times were very happening. There are a lot of commitments from the government of India, not only towards the financial supplementation, but also towards the policy side. There are a lot of announcements in the budget regarding a lot of missions and a lot of programs. If you see the bottom line and the thought of the government of India is that for the big Bharat, we need big cities, the developed cities. And for developed cities, we need a lot of capital infusion, a lot of planning and a lot of emphasis towards the reforms and the government. So during H1 of the '27, HUDCO has delivered a strong performance because of all the reasons I had mentioned. During the first half of FY '27, it reflects the sustained business momentum and improved operational efficiency. The disbursement of the loan stood at around more than INR 35,000 crores, which is around 37% more than the previous financial year, and our loan sanction has reached to more than INR 1 lakh crores during the first half yearly. The pipeline is very strong regarding the disbursement, and we are completely aware that a lot of disbursements will be planned in times to come. The loan book has grown by 29%, and it has become INR 1.86 lakh crores. Revenue from operation has also increased by 36%. The net profit has also been increased during half year. Asset quality continued to improve, and we are very aggressively working towards the resolution of the balance success also so that we can use that capital. Our gross NPA has declined to around 0.7% and net NPA is just above 0, that is 0.04% and we are permitted to become 0 NPA company very shortly. We had also worked towards cutting down cost of funds and by taking various measures and various steps, not only towards the policy, but also we are taking benefit of this RBI window. Our blended cost has been very stable. Irrespective of the turbulent markets, it is now at around 7.07%, which reflects our continued focus on resource optimization. Despite a rising interest rate regime and elevated corporate bond yields. These achievements reflect both strong fundamentals, prudent risk management and consistent execution of those studies. You may all be aware that there are a lot of political issues which are there in the international domain. And because of these uncertainties, there are a lot of uncertainty in the money market with the pricing of the dollar or the crude or tightening of the monetary policy, including the raising of the repo rates by the RBI. So all these wins are coming for us, and we are targeting that how to resolve that our continual growth will become at optimum level, and we will be -- we continue to find our growth space as we were doing presently. We are very consciously pursuing to diversify our funding strategies, leveraging multiple resources may be domestic, it may be international, optimizing our cost of funds. At the same time, we are we are also addressing that there should not be any risk perceived while taking the international loans and that's why we are taking full advantage of our base window. Our resource monetization strategy is mostly aligned with our asset management. So we are fully aware that we need to balance our asset management as well by continuously optimizing our borrowing mix and the funding costs aims to strengthen our competitive edge in lending operations, protect margin and ensure sustainable growth. Our endeavor is to translate with mobilization efficiencies into the competitive lending rate, thereby creating long-term value for our stakeholders. You see the infrastructure story of the Government of India and our country, India. There are a lot of emphasis there on the urban ecosystem and how to create a very viable mandible and sustainable urban infrastructure. So it is not only about the trunk infrastructure on which the government of India is spending a lot of missions and a lot of programs starting from the PMAY that is ensuring the housing for all across the country and PMAY 1 was very successful and now the PMAY 2.0 is also launched. Along with the housing, are also aware that there are a lot of missions towards water that is The smart city missions were there. mission is also there. Alongside government is pushing the mobility also be metro, rapid rail or Vande Bharat or air networks through Udan programs or industrialization through various programs be the So a lot of things we are transforming. And everything if you see is enforcing the view that the creation of the urban We are very fast in our organization. Our space is very fast, and it has been estimated that by 2050, our urban population, which is -- which will be doubled by 2050. So -- so there is a big challenge towards the urban ecosystem for creation of infrastructure, which is not only for the facility, but also it will create growth in the country because around 60% to 70% of the GDP is coming from the urban network only. With this challenge, government has also announced the urban wherein the INR 1 lakh crores is a subsidy or the grant portion that the government has decided and another INR 1 lakh crores has to be infused by the state government. So for INR 2 lakh crores, it will be the private participation has to be seen. So in other words, you can say it is a 50% VGF for the urban infrastructure that the Government of India in association with the state government has announced. So it will unlock a lot of private capital. It will also leverage a lot of assets which are there with the ULBs or in the cities. Government has also came out with the loan 50 year interest-free loan to the state, which is primarily used for the urban ecosystem. The 16th Finance Commission has also raised a lot of grants for the states, which we also will also become a driver in the growth story of the urban networks. So the objective of the government is to create the growth engine, the cities as a growth engine, redevelopment of the cities. And alongside -- there is 1 program, which is also announced with the city economic reason, wherein the main city will be identified, its economic activity will be identified and other cities will be developed with backward and integration -- backward and forward integration of this economic activities. For that also, a lot of funds have been earmarked in the budget. So if you see HUDCO is at the epicenter of starting from the housing to the infrastructure across the country, a lot of programs are supplementing the efforts of the HUDCO. That's why this is the main reason that our loan book is continuously growing, and this story has just started. It may be continuing from for another few years. And -- we will be supplementing the efforts of the government for creation of the designation by 2047. So we are a sector-agnostic company. So across the sectors, we are financing. Other than that, we are financing the new satellite towns or magnet towns or industrial towns as well, then the roads or the mobility also we are supporting in a big way. We are also working on our STG structure so that STG and the ESG is such so that whatever loans we are extending, they will be compliance with the ESG right so that our international stakeholders will not have any issue regarding the financing. We are very closely working with the multilateral banks like World Bank, ADB, KFW, AIG and -- so they are also supporting our point of view and the objective of the nation. So I'm very sure that the way the company is growing and supplementing the efforts we have already achieved around INR 1.86 lakh crores of the loan book. We are targeting that during this year, this financial year, we will be around INR 2 lakh crores loan book. And by 2030, we had given the initial guidance 2 years back that we will be achieving around INR 3 lakh loan book. So we are working on that. We are trying that our spreads will be maintained at around 2% and NIMs will be 3%. All the financial ratios are very well in the control, which is supporting the business model of the company. Government is also supporting since we are a 75% owned Government of India company. So it's company of the strategic importance, and we are working towards repurposing of HUDCO within HUDCO creating a lot of strength not only to the recruitment of the new officers, but also through the capacity building across the company. We have started urban invest window last I would say, I win. So you win, I win. It is primarily to identify the assets of the to create the project, then they are restructuring and then their financial closure. And at every step, there will be capacity building of these entities and their offices. So we are focusing to become purely a 360-degree kind of output-oriented and outcome-oriented company in terms of the urban infrastructure. So with this, I will not take a lot of time. Thank you so much, and we are open for your question-and-answer.

[Operator Instructions] First question is from the line of Sanket Chheda from DAM Capital Advisors.

Yes. Congrats on a good set of numbers. What I wanted to understand is we are fairly certain about the growth, looking at the disbursement and sanctions momentum, but I wanted to get more sense on while we pursue this growth for the next couple of years and the margin. So how would you suggest an outlook on both of these things? First of on, I live it to the market dynamics and hence, not on that, but how would your yields moving and thereby margins over the next 1, 2 years?

So if I understood correctly, you are asking about how we will be sustaining the interest effect and net interest margin. So I can assure you and the investors certainty that our spreads will be around 2%, and we will be maintaining on year-to-year basis. There may be a slight corrections during the year because of the market fluctuations, cost of borrowing, the timing of the disbursement that we set, which are happening across the loan portfolio because the reset on a basis. So there may be a temporary slowdown towards I can assure you that it will remain 2% at the end of the financial year, and we will be sustaining across by spreads of the 2%. And similarly, the NIMs we are targeting that it would be at least 3%. And we are maintaining that. And if you see, without this EBR of 20,000, presently also, our spread is 1.96%, which is just around 2%. And our net interest margin is 2.93. So for other -- for the sake of other stores, I can tell you that INR 20,000 crores in our loan book is a loan to the Government of India, which has a spread of only 50 basis points. So if you reduce this on, then the spreads are around 2%, and the net interest margin is currently.

And when is that moving out, sir, in terms of the repayment schedule?

'28, '29 it will be out from this.

Okay. Okay. Okay I think I just wanted to know that. And -- the other thing which we didn't have in this quarter, which is transitional losses due to the currency movement. As we had alluded last year that from and so on, we won't be seeing that and that would stay right going ahead as well.

It's a very miniscule amount, so we stay -- it is -- so it has been 0 now. So there will not be any

Going forward also, we don't foresee any losses on foreign currency translation because now our loans are remaining maturities really 5 years and sufficient at most of the exposure to foreign currency which is draws for full protection against the currency fluctuation. Only thing is a small portion of FCNR is there, which is maturing in 2028. So going forward, we don't foresee any losses on foreign currency movement.

Okay. Okay. So sir, a last one, just on the call a couple of minutes late. Have you set out any disbursement target for this year?

Disbursement target, yes, we have kept an internal target of INR 65,000 crores. And during that, we had already achieved more than INR 35,000 crores another INR 30,000 crores is that our target.

So that will be minimum, it can -- you can exceed that target?

Yes. It's a target depending on the pace of the project because we didn't disburse like this. So it will be the project progress on the basis of that the INR 30,000 crores has been estimated. So in case the pace of the project is expedited is, of course, the disbursement may high. But I don't see any reason to correct this figure of INR 65,000 crores as of now.

Next question is from the line of from Forensic Investing.

Sir, I just want to know the previous participant, right, so whatever is our lending book asset book, so that is we can reset, right, that interest at a particular 6 months or 9 months, something like that, you have to understand.

There is a 1-year reset standing to all our loans. So it's a trend wise 1 year. So on trance completes its 1 year, then it will be resetted as per the MCLR. And our MCLR that is a benchmark rates are revised on quarterly basis.

Okay. Okay. So basically, whatever if there is an increase in our borrowing cost post 1 to 1.5 years, it will be reset, so there won't be any compression in the NIMs?

Yes, yes. There will not be -- it is only 1 year. So there will not be any comparison. Whatever we will be -- the cost will be hiring, it will be passed on to the borrower at that interval.

Okay. Not -- and sir, regarding the resolution, right? So sir, is it possible to know that how our organization keeps such a minimal net NPA, right? And if there is any resolution would we encounter some difficulty in that thing?

I don't say it's a difficulty in resolution because we are very, very aggressive and continually working towards not only the onetime settlement, but also aggressively pursuing at the NCLT or NPT labels or the valuation level -- it's a 2-way kind of resolution that we are working. It is not alone the court or the decision of the court that we are relying, but we are evaluating. We are discussing with our borrowers, understanding their issues and settling their projects because these projects are way back disbursed the 20 years or 30 years at a time. So a lot of things has been changed. So proactively, we are discussing with them. And if you see during H1 '27, we have a recovery of INR 32 crores and recovered around INR 359 crores. In '25-'26, we have recovered around INR 403 crores and resolved around INR 660 crores. In '24, '25, we have a recovery of INR 416 crores. So if you see, we are very aggressively resolving these assets, recovering our money what is possible within the framework. And most of these cases, which are balanced the orders had already received, they are under various stages so that the money will come. Some of the project has gone to the liquidation. So time to time, we have started getting the money also. So I'm very hopeful that this miniscule amount of INR 1,200 crores, mostly it is pertaining to the NCLT and the DRA team. So most of these amounts will be will be resolved in a year of the time, and we are very strongly pursuing with the consortium partner as well as the NCLT market.

Great, sir. as a shareholder, thank to the management, right, for such a great afford. But sir, we don't see challenges in government in same-event organization, right, for recoveries?

Can you please come again?

See, this resolution is private entity, right? But in government and and semi government right example, so we won't give such challenge right in recoveries.

So most of these around 95% of these loans are to the private sector entity. And that's why we are -- we have a lot of discussions with the private sector players and most of these are from the private sector side.

Some of the assets have been backed by mortgage. It was around 20, 25 sold assets. Now the value of the assets have gone up substantially, we're very sure that we'll recover

Next question is from the line of Ashika Institutional Equities.

So I just have 3 questions. So firstly, I mean you've highlighted in our presentation that there's a INR 3 lakh potent under finance net list of housing infra. So which should be primarily which sectors are we primarily going to focus on this? And second question being under the PPP project financing, have we commenced our sanctions, I mean, sanctions and disbursements -- and the last question being, what is our outstanding? What is the number for outstanding sanctions? And how much time do we expect to convert it to disbursements? So yes, those are my 3 questions.

Okay. Yes, Actually, if you see, we had kept a target of INR 3 lakh crores of the loan book. But the opportunity is very weak in urban sector report. It requires around INR 250 lakh crores by 2030. So we had taken our share 2030 of the loan book of which we have at our ratios should not get distorted. Secondly, you had asked regarding the PPP, we had already started sanctioning of the projects. We had sanctioned on redevelopment on the biggest slum project that is in Mumbai Dharavi. It is in the advanced stage of the documentation, and we are very hopeful that during this quarter, the disbursement will start. Other than these projects, no disbursement has been started under the PPP mode, but we have sanctioned around INR 9,000 crores of the PPP project. It may -- they are primarily from the redevelopment of the slum, the road sector and 1 is from the renewable energy side also. Regarding -- third question was regarding the outstanding pipeline, there is no derth of the outstanding pipeline which you see. Every half yearly, we are sanctioning around INR 1 lakh crores. Last year also, we had sanction INR 1 lakh crores. We have a pipeline of projects which are sanctioned from between INR 3.5 lakh crores to INR 4 lakh crores. And since we are long gestation periods starting from the 3 years to the 5 years of the time, so the conversion will take some time regarding the disbursement and the loan.

Okay. Just 1 small bookkeeping question. If you could provide the cost of borrowing for banks, bonds and ECD,respectively?

Yes, yes.

Yes, ECD, I mean, we have based during the current financial so far, we have raised $2 billion and effective blended cost after hedging is slightly less than 7%. It is around roughly 6.75%. Coming to the bonds, as you see, bond rates are quite elevated these days in the last 2, 2.5 months. It is hovering around 8%. So we have not raised any money through bonds in the last quarter, we raised in the first -- Q1 we raised around INR 2,200 crores through bonds that was roughly 7, 7.25 roughly. But after that, the yields have gone up. So we are not resorting to and we are waiting for the right time to go for bonds. From banks also we are able to raise money at around 7.25%.

Next question is from the line of from Fortress Group.

First, coming back to your yields. Sir, there has been -- on a Y-o-Y basis on a sequential basis, you have seen some compression in yields. So what gives us confidence or are we seeing that the repricing is yet to happen and will happen in the next few quarters and will be back with a spread of 2% because cost of funds, we don't see much of a release anyway from the fee from the bond market or from the MCLR. So what gives us the confidence that we'll be able to maintain or end the year with a 2% spread?