H U D C O — Q2 FY26 earnings call

Call held 12 Nov 2025

Management summary

HUDCO delivered strong H1 FY26 results with significant growth in sanctions, disbursements, and loan book, alongside notable improvements in asset quality. The company successfully reduced its cost of funds and is actively managing forex exposures. Despite a slight dip in Q2 NIM due to lower resolution income, management is confident in achieving future margin expansion and maintaining robust growth through new initiatives like the Urban Invest Window and private sector entry.

Highlights

  • Sanctions for H1 FY26 reached ₹92,985 crores, a 22.34% increase year-on-year.

  • Disbursements for H1 FY26 were ₹26,000 crores, growing 19.81% year-on-year.

  • The loan book expanded by 30% year-on-year to ₹144,000 crores, maintaining a growth rate of around 30%.

  • Gross NPA reduced to ₹1,750 crores (1.21%) and Net NPA to 0.07%, with a target of zero NPA within 15 months.

  • Weighted average cost of funds decreased to 6.32%, down from 7.12% (or 7.45% to 7.12%).

  • Revenue from operations for H1 FY26 grew 29.78% year-on-year to ₹6,100 crores.

Concerns

  • Incurred a forex loss of ₹176 crores in H1 FY26 due to FCNR volatility, compared to zero loss in H1 FY25.

  • NIM was slightly down in Q2 FY26 due to lower resolution income of ₹16 crores, compared to ₹200 crores in Q2 FY25.

Key financials

3 periods

Headline

  • Loan Book
    ₹1.44L Cr
    YoY +29.7%
  • Gross NPA
    ₹1,750 Cr
  • Gross NPA %
    1.2%
  • Net NPA %
    0.07%
  • Weighted Average Cost of Funds
    6.3%
  • NIM (excluding EBR)
    3.4%
  • NIM (including EBR)
    3%
  • ROE (last quarter)
    1.9%
  • Return on Equity
    15%
  • CRAR
    38%

Q2 FY26

  • Recovery
    ₹16 Cr

H1 FY26

  • Sanctions
    ₹92,985 Cr
    YoY +22.3%
  • Disbursements
    ₹26,000 Cr
    YoY +19.8%
  • Revenue from Operations
    ₹6,100 Cr
    YoY +29.8%
  • Forex Loss
    ₹176 Cr

What they filed

Q1 FY27: revenue up 26.6%, net profit up 35.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,518 2,760 2,845 2,937 3,219 +28%3,431 +24%3,563 +25%3,717 +27%
Net profit689 735 728 630 710 +3%713 −3%1,981 +172%851 +35%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Debt Debt disclosed Cost 6.3%
    • New borrowing Raised ₹32,000 crores at a weighted average rate of 6.32% in H1 FY26, tapping foreign currency, domestic loans, and refinancing. ₹32,000 Cr
    • Forex hedge Implemented hedging policies including ECB borrowings in Yen denominated and SGL options for FCNR loans to reduce cost of funds and manage volatility.
    • Forex hedge Taken adequate protection for external commercial borrowings (₹9,900 crores) via SGL options and for FCNR loans via SGL options and European knock-in barrier option structure.
    If you see the borrowing side also, it is very promising, and we have been able to sustain our growth towards reduction in the interest rate and to place us as a very competitive player into the financing of the infrastructure, and we had raised around INR32,000 crores at the rate of -- weighted average rate of 6.32%.

Guidance & targets

Loan Growth

  • Loan Book Growth Rate Loan Growth · ongoing · High confidence 25-30%
    So, as we always discussed that our growth will be more than 25%. So we are maintaining our growth rate of around 30%.

    — Sanjay Kulshrestha, Chairman and Managing Director

Loan Book

  • Loan Book Value Loan Book · by March 2026 · High confidence INR 1.6 lakh crores

    Previously INR 1.5 lakh crores → INR 1.6 lakh crores

    So 2 years back, we had targeted that by March '26, our loan book will become INR1.5 lakh crores. And we had already achieved INR1.44 lakh crore or INR1.45 lakh crore. So it is a statement that we will be achieving this INR1.5 lakh crore by March, and that's why we had revised upper side, and we have now revised to INR1.6 lakh crores.

    — Sanjay Kulshrestha, Chairman and Managing Director

  • Loan Book Value Loan Book · by FY 2030 · High confidence INR 3 lakh crores
    So -- and for FY 2030, we have a target that it will become INR3 lakh crores of the loan book.

    — Sanjay Kulshrestha, Chairman and Managing Director

Profitability

  • NIM Profitability · ongoing · High confidence 3% to 3.3%
    So we will be maintaining our current rate of plus 2% of the spread and plus 3% of the NIMs because we want finally the projects should sustain the repayments, it should be viable, sustainable and bankable.

    — Sanjay Kulshrestha, Chairman and Managing Director

  • NIM Improvement Profitability · Q3 FY26 · High confidence at least 10 basis points
    Okay. So, 10 basis point improvement in Q3 is what you're expecting in terms of margin? Yes, yes, definitely, at least 10 basis points.

    — Sanjay Kulshrestha, Chairman and Managing Director

Asset Quality

  • Gross NPA Asset Quality · within 15 months · High confidence zero NPA
    I will -- just like to say that we are committed that within 15 months of the time, we want to become a zero NPA company and all efforts we are making...

    — Sanjay Kulshrestha, Chairman and Managing Director

  • Net NPA Asset Quality · within 15 months · High confidence zero NPA
    So that was for gross NPA, right? Gross Stage 3 will become zero... For the net NPA that I'm talking for the net NPA for which we had already achieved 0.07%.

    — Sanjay Kulshrestha, Chairman and Managing Director

  • NPA Resolutions Asset Quality · Q3 FY26 · Medium confidence INR 200 crores
    And in quarter 3 also, we are targeting around INR200 crores of the resolutions, which are in the advanced stage.

    — Sanjay Kulshrestha, Chairman and Managing Director

  • Total NPA Recovery Asset Quality · Q3 & Q4 FY26 · Medium confidence INR 900 crores
    See, around 10 projects we have identified for resolution in quarter 3 and quarter 4 total of around INR730 crores of the principal. And we are expecting a recovery of around INR900 odd crores.

    — Sanjay Kulshrestha, Chairman and Managing Director

  • NPA Recovery (H2 FY26) Asset Quality · H2 FY26 · Medium confidence INR 450 crores
    Yes, recovery of INR900 crores, we are targeting around 50% of the revenue should come in H2 of this financial year and then in the next financial year.

    — Sanjay Kulshrestha, Chairman and Managing Director

Disbursements

  • Total Disbursements Disbursements · FY26 · High confidence INR 50,000 crores
    For this year, we have a target of INR50,000 crores of the disbursement out of which in the first half yearly, we had achieved 50%. So the target is 50%, which is a growth of around 25% on a year-to-year basis. But I'm very sure that this INR50,000 will be achieved, with this committed pipeline.

    — Sanjay Kulshrestha, Chairman and Managing Director

Sanctions

  • Urban Challenge Fund Sanctions Sanctions · within 1-1.5 years · Medium confidence INR 1 lakh crores
    So we are targeting INR1 lakh crores of the state government requirement. So that will be one part of INR1 lakh crores that is a business potential for HUDCO and INR2 lakh crores has to be arranged by the PPP players. And now since we are starting this private sector also, so that can also be a potential opportunity for HUDCO to grow. Sanction will be done, I think, within a 1 year or so, 18 months of the time and the disbursement will take another 2 to 3 years of the time.

    — Sanjay Kulshrestha, Chairman and Managing Director

What to watch in Q3 FY26

FCNR exposure maturity and forex impact

Q3 FY26 (by March)
Current ₹176 crores forex loss in H1 FY26; USD 400 million FCNR maturing in Q3 FY26 (175 million in Nov, rest in Dec).
Target No FCNR exposure by next FY; no further forex losses from FCNR.

Why it matters

To assess if the forex risk from FCNR is fully mitigated as guided and if further losses are avoided, impacting profitability.

In the H1 2025, '26, we have taken we have incurred a loss of around INR176 crores as compared to zero loss in the H1 of 2024, '25. So, most of my FCNR -- I mean, more than 50% of my FCNR stands matured and now around 30% to 40% of FCNR is remaining, which will get matured by February, March, coming February, March that is Q4. And after that, we do not have any FCNRs to mature in the next FY.

Risks & concerns

  • Forex fluctuation, specifically FCNR volatility

    medium

    Incurred ₹176 crores loss in H1 FY26 due to FCNR volatility; mitigation actions taken, and remaining FCNR exposure (USD 400 million) is maturing by Q4 FY26.

    Management acknowledged

Q&A highlights

8 direct
Risk evaluation and underwriting criteria for new private loans Direct
Initially, the bankability of the project has to be seen and the investment grade of the entity has to be seen. So, it will be two graded approach, for the appraisal. And for monitoring, it will be 3 graded approaches. We will be taking support from the PMC also to take care of the project progress and the quality.

Management detailed a cautious and stringent approach to entering the private sector, emphasizing investment-grade entities and robust project appraisal/monitoring to mitigate risk.

Asked by Mohit Oza

Loan growth guidance Direct
Second is the guidance on the loan. So, as we already -- I had already discussed that it will be plus 25% that we are maintaining. And I don't see anything to obstruct this path of 25%.

Reaffirms the company's confidence in achieving and maintaining a strong loan growth rate of over 25%.

Asked by Mohit Oza

Conversion of outstanding sanctions to disbursements Direct
So we have a clear pipeline of around INR3 lakh crores of the sanctioned projects, out of which INR2 lakh crores has already been documented, agreements have been done. INR1 lakh crores at various stages, and we are discussing regarding the documentation.

Provides clear visibility into a substantial pipeline of sanctioned projects, with a significant portion already documented, indicating future disbursement potential.

Asked by Rati Pandit

Outlook on NIM and factors affecting profitability Direct
I think we are maintaining our profitability in line with our guidance that is around 2% of the spread and 3% of the NIM irrespective. If you see, there is a lot of fluctuation in the international market, and we are making some expenditures towards that. And because of that impairment reserve, some loss of profit, you can say. So the profit has came in this quarter to slightly lower.

Explains the reasons for a slightly lower profit and NIM in the current quarter, attributing it to impairment reserves and international market volatility, while reiterating long-term margin targets.

Asked by Rati Pandit

Resolution plans for remaining NPAs Direct
And in quarter 3 also, we are targeting around INR200 crores of the resolutions, which are in the advanced stage.

Offers a specific, near-term target for NPA resolutions, demonstrating active management of distressed assets and potential for future income from recoveries.

Asked by Rati Pandit

Impact of forex fluctuation on PAT Direct
In the H1 2025, '26, we have taken we have incurred a loss of around INR176 crores as compared to zero loss in the H1 of 2024, '25. So, most of my FCNR -- I mean, more than 50% of my FCNR stands matured and now around 30% to 40% of FCNR is remaining, which will get matured by February, March, coming February, March that is Q4. And after that, we do not have any FCNRs to mature in the next FY.

Quantifies the forex loss incurred and provides a clear timeline for the maturity of remaining FCNR exposures, suggesting a reduction in this specific forex risk in the coming quarters.

Asked by Sunil

Comfortable debt-to-equity levels for growth Direct
I think now we are at sub-7% of debt equity ratio. And we have done our mathematics for this growth, and we will be around 8%, we will be there.

Clarifies the current and target debt-to-equity ratios, indicating the company's capacity to leverage further for growth while staying within prudent limits.

Asked by Nemin

Spreads and strategy for the new Urban Invest Window Direct
Actually, if you see the HUDCO belief or our mission, we doesn't mean we didn't load our projects with a lot of spread. So we will be maintaining our current rate of plus 2% of the spread and plus 3% of the NIMs because we want finally the projects should sustain the repayments, it should be viable, sustainable and bankable.

Explains HUDCO's strategic approach to the new Urban Invest Window, prioritizing sustainable spreads (2-3%) to ensure project viability and bankability rather than maximizing short-term margins.

Asked by Gaurav Kochar

3 min read 6 chapters

Detailed narrative

Strong H1 FY26 Performance and Growth Trajectory

HUDCO reported robust H1 FY26 performance with sanctions reaching ₹92,985 crores, marking a 22.34% year-on-year growth from ₹76,000 crores in H1 FY25. Disbursements also saw a significant increase of 19.81% year-on-year, totaling ₹26,000 crores compared to ₹21,700 crores in the previous H1. The loan book expanded by 29.7% year-on-year to ₹144,000 crores from ₹111,000 crores, with an H1 growth of 15.8%, aligning with the company's target of over 25% growth. Revenue from operations for H1 FY26 grew 29.78% year-on-year to ₹6,100 crores.

Improved Asset Quality and Resolution Efforts

The company demonstrated significant improvement in asset quality, with Gross NPA reducing to ₹1,750 crores, representing 1.21% of the loan book, and Net NPA standing at a low 0.07%. Management expressed commitment to achieving zero NPA within 15 months through various resolution efforts including NCLT, DRT, DRAT, and direct discussions. For Q3 FY26, HUDCO is targeting ₹200 crores in resolutions, with a broader goal of recovering ₹900 crores from ₹730 crores principal across 10 identified projects in Q3 and Q4 FY26, expecting 50% of this to materialize in H2 FY26.

Cost of Funds Optimization and Forex Management

HUDCO successfully reduced its weighted average cost of funds to 6.32%, down from 7.12% (or 7.45% to 7.12%), by strategically tapping various resources including foreign currency borrowings and domestic loans. The company raised ₹32,000 crores in H1 FY26 at this competitive rate. Despite incurring a forex loss of ₹176 crores in H1 FY26 due to FCNR volatility, management has implemented hedging strategies, including SGL options and European knock-in barrier options, and expects the remaining FCNR exposure (USD 400 million) to mature by Q4 FY26, mitigating future forex risks.

NIM Outlook and Profitability Drivers

The Net Interest Margin (NIM) stood at 3.43% (excluding EBR) and 3% (including EBR), with spreads at 2.42% and 2.02% respectively. While Q2 FY26 saw a slight dip in profit and NIM due to lower resolution income (₹16 crores vs ₹200 crores in Q2 FY25) and impairment reserves, management anticipates an improvement of at least 10 basis points in NIM in Q3 FY26. This improvement is expected from renewed resolution momentum and potential repo rate cuts in December, which would further reduce interest expenditure.

New Urban Invest Window and Private Sector Entry

HUDCO launched a new Urban Invest Window to facilitate infrastructure creation in ULBs and states, aligning with the Government of India's Viksit Bharat 2047 vision. This initiative aims to convert all necessary actions for urban infrastructure into bankable projects, starting with capacity building, asset monetization, and project preparation. The company is also expanding into the private sector across five new segments (port, airport, road, energy, real estate) with stringent risk evaluation criteria, requiring investment-grade entities (IR1, IR2, IR3) and project bankability, supported by external consultants.

Long-Term Vision and Capital Adequacy

HUDCO has a clear long-term vision, targeting a loan book of ₹1.6 lakh crores by March 2026 (revised from ₹1.5 lakh crores) and ₹3 lakh crores by FY 2030, necessitating a sustained growth rate of 25-30%. The company maintains a strong Capital to Risk-weighted Assets Ratio (CRAR) of around 38% and a debt-to-equity ratio under 7%, with capacity to go up to 8%, indicating ample room for growth without immediate dilution. Management is also exploring perpetual debt issuance to further strengthen its capital structure.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls