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

Ladies and gentlemen, good day, and welcome to Housing and Urban Development Corporation Limited Q1 FY '27 First Earnings Conference Call, hosted by DAM Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors. Thank you, and over to you, sir.

Yes. A very Good morning to all of you. We have with us the entire management team of HUDCO to discuss the Q1 results. So from the management side, we have Mr. Sanjay Kulshrestha, who is a chairman and MD; Mr. M. Nagaraj, who is a Director, Corporate Planning; Mr. Daljit Singh Khatri, who is a Director of Finance; and Mr. Achal Gupta, who is the Executive Director of Finance and IRO. Without further ado, I'll hand the call over to Mr. Sanjay sir for his opening remarks. We will follow that up with question-and-answers. Over to you, sir.

Yes. Thank you, Sanket, and good morning to all of you. If you have seen the results, I'm sure that you have already seen the results. So I will not go through the numbers. So I will start with the ecosystem and the policy of the company as well as how we are aligning with the policies of the country towards the Viksit Bharat. As we all know that HUDCO is a sector-agnostic company, and there is a lot of potential into the urban infrastructure. And it is not the potential, it is the need of the hour that our cities need that kind of infrastructure. If you have observed the last 10 years' progress and the infusion into the urban infrastructure, starting from the basic urban infrastructure of PMAY or AMRUT or Swachh Bharat Mission graduating to Metro, RRTS, airports, ports, industrial policies, semiconductor mission, everything, every industry, I think they are attracting more of kind of a planned urban ecosystem and infrastructure because it's the capital and human intensive kind of industry that we are working upon. All these things are creating potential business for the company. It may be a Ring Road, it may be the Regional Ring Road, it may be multi-sector kind of infrastructure, multi-model corridors. So all these things are very capital intensive, and we are working with a lot of state entities for creation of these assets. And our numbers are the reflection of all these policies of the company. At the same time, if you see on the larger level from the government of India, there is a sense of leveraging of the infrastructure, which is already created in last 10 years, whether it is road or whatever it is. So at this point of time, there is a change in thought also from the subsidy of the grant-based schemes to the bankable projects. And with this perspective, a slight iota of reform has also started into the urban infrastructure. And we have seen the schemes or the projects, I will not say it's a scheme of projects rather, it's a fund-based approach or the way urban Challenge fund has been brought in, which is one of the very proactive kind of initiative taken by the Government of India, where the 25% to the extent of INR 1 lakh crores has been earmarked as a subsidiary or you can say VGF for the urban sector project and another 25% has to be dropped in from the state sector. And balance 50% to the extent of INR 2 lakh crores has to be created by the private sector players towards the bankable projects. So now the focus is towards bankability, viability and the sustainability of these assets. So it's a key change in the thought and a lot of states are coming forward with this thought and they are contributing a lot of projects and 2 schemes -- two Apex committees have already sanctioned around more than INR 30,000 crores. So if you see the [indiscernible] facility from the Government of India, there also, there are the some conditionalities towards urban infrastructure and a lot of money has been provided for the state sector. Then if you see the financial commission also, so the allocations towards the urban spectrum has enhanced to the maximum. So all these things, if you see, whether it is the policy, whether it is a thought, whether it is a capital expenditure or whether the preparation of the state towards creation of the new cities, planning new cities like in Delhi, the Jewar airport has came in near Delhi. So new cities are being planned in and around. Bombay is coming with this airport and a lot of urban conglomeration is concentrating towards that side. Naya Nagpur being coming. In Bangalore also, we are talking. Even the Northeastern side, if you see the Meghalaya, the new Shillong is being planned in. New Bhubaneswar is being planned in. So it is not only the organic kind of infrastucture which is required for the country. But we all know the urbanization level in next 20 years will be to the extent of 100%. So presently, if it is 40 crores of the urban population, it will be doubled in the next 20 years. So it will to the extent of 80 crores. So it is 50% of the total population, which is projected. So the kind of urban capital, which is required for the country, it is giving a lot of potential. And our results are the small reflection of that kind of commitment and that kind of plan for the country. So I will say with these initial comments, thank you so much.

Should we begin with the question-and-answer session now?

Yes, you can.

[Operator Instructions] The first question is from the line of Sandeep Agarwal from Naredi Investments. As there is no response, I am taking next question from the line of Vijay Singh from Mirae Asset.

Congratulations on a good set of results. Sir, my question is just I wanted to understand a bit more about foreign exposure, short-term foreign exposure. And second one is on lending rates. These two will be -- these are my two questions.

So regarding the short-term foreign exposure, there is very, very miniscule. We had retired all short-term foreign currency loans. So whatever we have 99% -- more than 99% is the long term, that is 5 years borrowing. So company has planned to take the advantage of this RBI ForEx window. And we had already borrowed around EUR 700 million, and we are planning -- we have a tie-up of around USD 2 billion under this facility, and we are trying to enhance this number. But at the same time, we need to see 2 things. The availability and the cost. So we need to balance on these 2 aspects. And at the same time, if you see, the domestic loans has also started melting down. So we need to be very wise in deciding the levels of the foreign currency loans going forward.

So I should understand we were getting some arbitrage challenges on foreign exposure, higher hedging costs and all. So that costs are not likely to come up in terms of payment and all short-term foreign exposure. Am I correct, sir?

Yes, you are correct. But finally, we are getting some good funds because our approach is to work with all the lenders. And we had started this for at least 2 months back, and now we are getting that kind of advantage.

No, sir, but that is for short term because in earlier calls, you told we are going to proactively manage a short-term foreign borrowing. Hence, we should not have as currency appreciation sorry, currency depreciation impacted on some hedging -- higher hedging costs and et cetera. So I wanted to understand that point.

No, no. It's not short term. It's a 5-year loan. Since RBI has changed with the window that if you are raising dollar-denominated loans for 5 years, RBI is also taking care of part hedging costs, and we have to take only 1.5% of the hedging costs. So it is coming out to a very attractive kind of proposition for lenders side.

Correct. Correct. And my second question is, sir, how is our portfolio yield and how this is related to interest? Portfolio yield or passing on balance sheet?

Portfolio and lending ratio.

I think it is very relevant, but it is a continual kind of statement that I can make that our spreads will remain around 2% and our NIMs will be around 3%. We don't have exact calculation of that, but the results -- whatever results in a very short term, maybe by this end of this financial year, we will be resting at around spread of 2%. So you have to understand that the ecosystem in which HUDCO was, it is not a kind of -- the bankable projects are almost ready and a lot of cash flows are coming. So we are very diligent in choosing our projects and at the same time, choosing our entities also, so that there should not be any risk of NPA. So 2% is the NPA -- 2% is the spread, which is well acknowledged by our borrowers, and we will be maintaining that kind of spread. At the same time, we will be continually working towards cutting down cost of funds, cost of borrowing. Be it the RBI ForEx window, be it the internal cost, be it the bank loans, be it the proposition that how we are retiring the high-cost loans or we are dissolving our assets or monetization of our assets. All these efforts will be continued and will be going through. And at the same time, that will be around 2%.

The next question is from the line of Sumeet Rohra from Smartsun Capital.

Firstly, sir, I'm happy to say your results have been extremely strong. So congratulations on that. Sir, just a couple of things I wanted to understand. So we were facing issues last year of basically the FCNR, et cetera, for which basically our last financial year, our core numbers were quite suppressed. So is it safe to assume now sir, all those issues are now behind us in terms of all the accounting losses of the foreign exchange? That's my first question, sir. My second one is that in the month of June, you have signed 2 MOUs, which I see, sir, one is with Gujarat and one is with Bihar. Now they both are in excess of INR 1 lakh crores. So can you throw some light on basically how basically this is going to shape up in the overall sanctioning and disbursement? Because, I mean, sir, these are big projects which you've got into. So can you just explain slightly that today, our existing MOU is about INR 7 lakh crore or something of that sort or INR 8 lakh crore. I don't recall. But this will further add INR 2 lakh crores. So are these confirmed ones which are going to be disbursed or so can you just throw some light and then I'll ask you a little bit further, sir.

So regarding FCNR, our Director of Finance will comment, and then I will take -- because it will take slightly longer time for me to elaborate on these two MOUS. So over to Director of Finance.

Good morning, I am Daljit Singh. Happy to discuss. Director of Finance. I think the earlier question was also related to short-term foreign currency borrowings and so as CMD sir has said, we do not have any FCNRs in our books, which are going to mature in the current financial year or the next financial year. We have a very small portion of FCNR, $200 million, which we -- they are going to mature in 2028. So we do not foresee any foreign currency losses in the current financial year. And that $200 million, which is going to mature in 2028 is also adequately secured, we have taken higher protections, and we do not foresee any ForEx losses on that. Rest of the borrowings are long-term borrowings, 5 years ECBs, which we have taken, and there are also -- mostly, they are going to be covered under the special window of Reserve Bank of India, where we are going to take POS that is full protection on the ForEx.

So regarding the second part of the question, the MOUs, the philosophy of the company is to work across the country. Presently, we are more intensively working in around 12, 13 states, and some of the states were not in that kind of bigger capital-intensive projects. So now our emphasis is to work with these kind of states. And I think the Gujarat is the first stage to start upon because a lot of bankable projects are coming in, starting from the metro to the roads and the infrastructure for the sports, as we all know that international police games are coming in '29 and then the Commonwealth Games will be there in Ahmedabad in 2030. And then Ahmedabad is also bidding for the Olympic 2036. So all these things require a lot of infrastructure. After a lot of discussions and the deliberation at the government level -- the state government level, Gujarat Government, we had signed this MOU, which is bagged by a lot of projects which are identified, which includes the infrastructure for the Olympics finally and the metro systems, RRTS also since Gandhinagar, Ahmedabad and the Sabarmati has to join and that kind of infrastructure has to come on. A lot of growth projects also, the highway projects also, they are planned by the state. So I think it's a way to go in Gujarat. The projects will start coming from the next month. In this quarter, we will be sanctioning some projects in the Gujarat. So I'm very hopeful for that. Secondly, regarding Bihar, as we all know that all these states has to come forward and now Bihar has come up with the Viksit Bihar kind of statement, which is very clear. And when we were discussing with the state, they were more focused towards creation of this capital infrastructure and primarily the urban infrastructure. Looking at the resources of Bihar. And that's why we had signed an agreement for creation of 12 satellite towns. We are also discussing some road projects, some tourism projects and some -- the metro projects as well beyond the housing as well. So some housing projects are also in the pipeline. So there is a lot of leverage, a lot of leeways in the state government for understanding how these capital projects can come up in Bihar. And then they want to take the facilities of the urban Challenge fund also, which invariably say that the project needs to be bankable. So the role of lender will also be there. So HUDCO will remain there as a lender for Bihar Government. So on these lines, we have signed these MOUs. But at the same time, if you see the journey of last 55 years, to the consultancy to training to lending, I think we are the best bet for the state government, and I will request our Director of Corporate Planning to -- which is more on this aspect of how 360-degree kind of solutions we are providing to the state.

So good morning. So let me give you a small example. Immediately after signing an MOU, the Government of Bihar has come out with road projects, which is almost to the tune of INR 21,000 crores. Believe me, there's a steep competition for financing state like Bihar from NABARD, [indiscernible], Commercial Banks and the rate of interest has also gone down so much. So there is a huge potential for getting a scheme. So now second phase is coming as our CMD has said, 12 satellite towns, cities like -- even smaller cities like [indiscernible], even Patna, they're all coming to the satellite towns completely independent, integrated, self-contained townships. Government has started in a big way acquisition of and also master planning. [indiscernible] is likely to go with both in consultancy as well as in the financing and also acquisition. So I feel that there is a huge potential in tourism, in digital parks and also layout of satellite towns. And one more example also, a small state like Arunachal Pradesh, which is bordering Assam, there is a new airport has come out with. The [indiscernible] came on -- she has projected such a wonderful new concept called a small city, integrated complexes, commercial complexes, borrowing of some. So that shows that each state is competing with the other states and there is a lot of scope for our developmental works.

Sorry, but I mean, if I may just ask 1 thing. So I mean a matter of fact is that you have visibility on these projects, and each of them are INR 1 lakh crore nearly. So can we safely assume that today, your growth rate, which you're talking about are extremely conservative, right? Because I mean, if you've got clear visibility from Gujarat and Bihar personally sanctioning and disbursing INR 2 lakh crore, I think this guidance of which we've given of INR 3 lakh crores by 2029-30, it looks extremely conservative, right? Because I mean, there is clear visibility, which I'm seeing from exactly what you're saying, right? So is my understanding correct, sir?

To some extent, you are right because the projects -- the progress of the project, we didn't spend money like anything. We need to see the outcomes also that we need to see the progress of the project. And there are a lot of things that the state needs to comply before awarding the contract. And the process is not like -- it's not an easy process because land acquisitions, social issues, political issues, so a lot of things are there. So the arithemetic -- here the arithmetic says that it will be done by 2029. But I'm sure once the project starts there, maybe here and there, but finally, generally these large projects are completed within 5 years of the time. So it is better to take 5 years kind of thing.

The next question is from the line of Divyam Ketan Doshi from 923 Capital.

Congratulations on a great set of numbers. I just wanted to know, since we have an -- we have -- Board has discussed the guidelines about starting PPP Project Finance division. I wanted to know what's your internal target book size for FY '28, '29? Or what is the plan with that?

So, we have repeatedly advised the market that there will not be any target for the private sector sanctions or the disbursement. So it will be on the case-to-case basis and in line with the strategy of the company to support the various sectors, and we have started with the private sector. One project -- two projects rather, we had already sanctioned in Q1 and Q2 -- the part of Q2, I think in Q1, Q1, we have sanctioned 2 projects and amounting to around INR 6,000 crores or so, INR 7,000 crores. So maybe the disbursement will start in the latter part of this financial year. But if you see the loan outstanding, because sanctions are different. We can sanction any number of projects. But at the same time, the maturity of the project, the documentation, the disbursement has to start. And finally, they have to accept our financial closure. So in private sector, if you want to go for good entities, the best entity, there are a lot of discussions on the terms and conditions of the loan and other players are also there. So that's why we had not kept any target. But at the same time, I can assure you that we will go very safe on the private sector. At the same time, we will be supporting the sector also. Under UCF, a lot of PPP projects we are expecting, maybe it's water or desalination plants or storm water treatment, drainage, sewage, where we are expecting good PPP players, and our government has also under UCF is extending 50% CGF. So for 50%, we need to check the bankability and we are discussing with the states to have a user fees kind of framework also. So we are very open for the private sector. It may go as high as possible. But at the same time, the principles will remain same, good entities, good projects, good concessional, strong concessional agreement and a lot of collateral.

Okay. And 1 more question, sir. Can you give me a breakup of the yield on loans separately for urban infra and affordable housing, blended that comes to 8.78% something. So can you please give me a break up?

Actually, there is no separate breakup. Again, I will come to the same point. We are here to support the sector. At the same time, once the states are coming for a counterpart requirement under housing, which is not happening so often now, that's why our housing portfolio is reducing. So we are extending that around our MCLR of around 8.6%. And for other infrastructure, we have a different kind of rates as per the sectors, as per the requirement of the project. So I cannot say that, but -- so it is not 1 rate or 2 rates. But at the same time, our priority or our attraction or our commitment towards supporting the housing will remain there. That too under PMAY, but it's not coming so often for us now.

The next question is from the line of Arun from [indiscernible]. As there is no response, I'm taking the next question from the line of Sandeep Agarwal from Naredi Investment.

Yes. Just sir, add on the question regarding the MOU we signed. So currently, as per your presentation, we are currently approx 6 MOUs -- approx. INR 6.5 lakh crores. So just again, sir, what is the time line of all the projects and roughly approximate 3 to 5 years or something more? And how we raise the fund? What is the plan for the borrowing mix?

Yes. So we have signed the MOU. This is an intent to work together with the state. The MOU is valid till 5 years. And I'm very hopeful that the works on this MOU will start maybe in the last quarter of this financial year or maybe in some of the projects maybe before that also, like in metro of Gujarat, we are expecting pretty soon. The disbursement will go for another 5 years. So it will take some time because they are very capital-intensive projects and a lot of project formulation for the restructuring and a lot of time is required for financial closure to have that kind of feeling that how servicing will be done. And similarly, for other MOUs also, it will take 5 years, probability is for the 5 years. So disbursement or sanctions will start in the first year. And last disbursement may go up to 5 years or so. What is the next part regarding the borrowing?

Regarding the raising fund regarding the project and what's the borrowing mix you planned for this?

Borrowing mix, I think it will remain same. Presently, we have around the domestic loans, bank loans. We have the bonds also, domestic bonds around 40% plus 30%. So 70% is the domestic borrowing, more than 70%. And then we have around 10% ECBs we had already done. So out of INR 150-odd crores of the borrowing, we have around 10% of the foreign currency loan and the balance is the domestic loan. There is a possibility because of the RBI ForEx window that in another -- for another 5 years that ECB loans will be higher, maybe it may go from 10% to 20% of the total portfolio. Let's see how it unfolds. But yes, there is a lot of potential in the ECB side. We are also planning some bonds, but it will be a fractional contribution looking at the rate of the dollar and the other facilities. Finally, the cost -- the cost will be the key for deciding all these kind of borrowing.

Sir, just regarding the -- so currently, in current quarter, we have a tax provision of 20.16%. So why this low in the -- for the full year tax rate guidance?

So DS will be answering this.

Yes, tax rate is like 20.61%. Because now earlier we used to create a deferred tax liability on special reserve, which we used to create, which we are required to create for sustaining the long-term financing but to align ourselves in line with the other government sector and private sector, NBFCs, now we have -- the Board has decided not to create any DTL on the special reserves. So that is my effective -- that is why my effective rate has come down.