Govt proposes to sell up to 7% stake in HUDCO via OFS, Stock Tank 9%

Housing and Urban Development Corporation Ltd. (HUDCO) dropped up to 9% on October 18 after the government's announcement of a 7% stake divestment through an Offer for Sale (OFS). This move aims to meet minimum public shareholding norms set by the Securities and Exchange Board of India (SEBI). Currently, the government holds 81.8% of HUDCO. This 7% stake sale could reduce this ownership to 74.8%, just below the mandated 75% threshold.

The government's plan involves selling up to 3.5% of equity through the OFS, with an additional 3.5% based on the base offer and oversubscription option. This offering targets up to 14.01 crore shares. Non-retail investors had the opportunity to participate on Wednesday, while retail investors were scheduled for Thursday, October 19.

This divestment strategy aligns with the government's broader agenda of reducing its holdings in listed companies to meet SEBI's norms. The government's divestment target for fiscal year 2024 is set at ₹51,000 crore, and the HUDCO stake sale contributes to this effort.

Financial Aspects

The floor price for the offer was set at ₹79 per share, representing a 12% discount from the closing price of ₹89 on the BSE the day prior. This OFS is expected to raise around ₹1,100 crore. As of October 17, the government had garnered ₹6,950 crore from disinvestment, with notable divestments including a 3% stake in Coal India Ltd, a 5.36% stake in Rail Vikas Nigam Ltd, and a 4.92% share sale in SJVN Ltd.

Stock & Financial Performance

Hudco's shares tanked 9% today. Over the past month, the stock has given a 12% return,  In the last six months, the stock surged by 80%, and over the past year, it showed an impressive growth of 126%. Zooming out to a five-year span, the stock has steadily grown by 92%.

As of September 2023, the government-owned 81.8% of HUDCO, while Foreign Institutional Investors (FIIs) held 0.7%, and Domestic Institutional Investors (DIIs) retained a 7.2% stake. The public held 10.4% of the company. During the April-June quarter of FY24, the company's total income increased a 5.35% YoY reaching ₹1,851.27 crore compared to the previous year's ₹1,757.32 crore.

Simultaneously, the company's net profit saw an 8% YoY growth, rising to ₹445.65 crore from the prior year's ₹411.71 crore. But, in comparison to the previous quarter, it dropped by 30.27%.

Technical View

From a technical perspective, the stock is currently hovering around a critical support level of 80. If it continues to decline, the next support levels to watch are at 75 and 70. When we look at the daily time frames, RSI (Relative Strength Index) is at 44 suggesting the stock is neither in an overbought (too high) nor an oversold (too low) condition. it's in a neutral zone.

It might be a good idea for investors to wait and see how the stock performs before making any new investment decisions. This cautious approach is important, especially because the broader market is also showing signs of profit booking.

HUDCO's Background

HUDCO, incorporated as "The Housing and Urban Development Finance Corporation Private Limited" in 1970, has a rich history in housing finance. It was later renamed "Housing and Urban Development Corporation Limited" and received recognition as a public financial institution in 1996. The National Housing Bank (NHB) also granted it the status of a housing finance institution in 2001.

In conclusion, the government's decision to divest its stake in HUDCO through an OFS is a financial move that aligns with its broader disinvestment strategy and compliance with SEBI regulations. Despite the initial stock price drop, the move is expected to contribute to the government's fiscal targets for disinvestment in FY24.