Government announcements for housing sector: Steps in the right direction

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.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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