Jaikishan Parmar of Angel Broking believes this fundraising in this environment would be positive for HDFC.
India's largest housing finance company HDFC, with its big fundraising plan, is likely to boost market share and finance untapped business opportunities at a time of uncertainty amid the coronavirus crisis, experts feel.
The corporation has launched a mega qualified institutional placement (QIP) issue comprising equity shares and warrants for up to Rs 14,000 crore. The floor price has been set at Rs 1,838.94 per share.
It will also raise Rs 9,000 crore through secured redeemable non-convertible debentures. The bidding for NCDs will take place on August 10.
"This fundraising is not exclusively for taking care of its debt risk, though it might provide some aid in this aspect too. These funds might be used for financing untapped business opportunities, particularly in financial space, that may arise from the disruption caused due to COVID-19," Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.
Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking believes the fundraising in this environment would be positive for HDFC.
He expects HDFC would use this capital for growth and inorganic opportunity. Corporation's moratorium reduced from 27 percent to 22 percent. 39.2 percent of non-individual book opted for a moratorium. However, only 10.9 percent of 39.2 percent has not paid any EMI while remaining has paid part or full EMI.
It has more than required provision on exiting gross non-performing assets.
Hence Jaikishan also feels HDFC will be able to gain market share, as it has been able to raise debt at a competitive rate, whereas other players are finding it difficult to raise debt at a competitive rate.
Many of the banking and other financial companies like ICICI Bank, Axis Bank, IndusInd Bank, DCB Bank, SBI etc are also in the process of raising funds from the market given the likely credit stress due to moratorium in COVID-19 crisis. HDFC current raising is part of this long pipeline.
"There are three aspects to be seen here. All these companies are trying to get themselves in a better capital situation looking at the COVID-19 related possible credit stress. Secondly, these financial companies are creating a capital cushion for growth in credit that will happen post-pandemic. And thirdly right now the system has sufficient liquidity allowing these entities to raise money which may not remain the case once economic normalcy returns," Vineeta Sharma, Head of Research at Narnolia Financial Advisors told Moneycontrol.
HDFC, incorporated in 1977, is a mortgage finance company and is also the holding company for investments in its subsidiary and associate companies.
As of June 2020, 70 percent of its equity shares were held by foreign investors, 19 percent by domestic institutional investors, 9 percent by individuals and 2 percent by companies. The market capitalisation of the company stood at over Rs 3.07 lakh crore at the time of publishing this copy.
"HDFC's core business is trading at 1.4x FY22 book value, which we believe inexpensive, considering superior management, higher provisioning on exiting non-performing asset and sufficient capital adequacy," Jaikishan Parmar said.
HDFC in the last 10-year has given a 188 percent return to investors, rising from Rs 614.6 to Rs 1,772 a share.
Vineeta Sharma believes HDFC is a very high-quality financial franchisee and at current valuation, a strong case for long-term wealth creation exist.
So investors should ignore short-term volatility that may happen once the moratorium period end and hold investments in HDFC, she advised.
Gaurav Garg also feels HDFC is one of the most stable NBFCs of the country and its outlook seems to be quite promising.
"The real estate space has seen a steep decline in recent times. However, with a recovering economy, the realty sector is also expected to revive which would give a niche opportunity for NBFCs' like HDFC," he said.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.