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.