Government announcements for housing sector: Steps in the right direction
Dated: 18th September 2019
Update on the Indian Market:
Nifty closed in the red for the 2nd day on Tuesday. It ended 1.7% lower at 10,817 levels. Depreciating Rupee and rising tensions from the attack on Saudi Arabia oil supplies may be the reasons for this decline. Leading the decline were NIFTY Auto (-3.8%), NIFTY Realty (-3.7%) and NIFTY PSU Banks (-3.7%). None of the NIFTY sectoral indices closed positive. Hero Motocorp (-6.3%), Tata Motors (-4.9%), Tata steel (-4.9%) were the worst-performing stocks in NIFTY50 while GAIL (+1.9%), Titan (+0.9%) and HUL (+0.9%) were the top performers.
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Government announcements for housing sector: Steps in the right direction
Excerpts from an interview with Mr Keki Mistry, vice chairman and CEO of HDFC, printed in Mint dated 16th September 2019
· The government announced setting up of Rs 10,000 cr fund for real estate projects requiring last-mile funding. Another Rs 10,000 cr is expected to come from the private sector.
· The step is in the right direction and would help huge number of projects that are stuck due to the lack of last-minute funding.
· Such a professionally managed fund would help the real estate issue to a large extent.
· The fund is for projects in the middle income and affordable housing category that are 60% complete, are non-NPA and non-NCLT.
· Today, if the project is NPA and requires the last 10% funding, nobody will be willing to put that 10% as the loan will be straightway classified as NPA from day one. That is why the fund eligibility might be for non-NPA projects. But on the other side, a project that is stuck is stuck because of lack of funds. If there is a lack of money, the builder may not have enough to repay loan instalments. So there is a chance that the project will become NPA. This needs to be looked at more carefully.
· Non- NPA qualification is hard to understand. IF the builder is not able to complete a project, it is most likely already classified as NPA. There are many projects that have not yet slipped into NPAs and where last-mile funding would help.
· The fund could be operational in CY2019 itself, if not certainly in CY20.
· Combining the government and private monies, a fund of Rs 20,000 cr if additionally leveraged 0.3 or 0.4 times, around Rs 26,000 cr will be available. This amount can take care of a huge number of projects.
· Many projects will have a small last-mile funding requirement of Rs 50-60-80 cr. With Rs 20,000 cr plus leverage, many such projects can be helped.
· Government has also proposed to relax External Commercial Borrowing (ECB) guidelines for affordable housing. This route could be a little cheaper than domestic borrowing. It could be a little cheaper than domestic borrowing. More importantly, it will open a new source of funding for some of the companies.
Consensus estimates (Source: Marketscreener website):
· The share price on 05-09-2019 was Rs 1,996/- per share. It was trading at a P/B of 4.2x/3.8x its book value per share estimates of Rs 479/520 for FY20E/FY21E respectively. The consensus price target was Rs2355 implying P/B target of 4.9x/4.5x for FY20E/FY21E respectively.
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