H U D C O — Q4 FY25 earnings call

Call held 8 May 2025

Management summary

HUDCO reported a strong Q4 FY25, with significant growth in its loan book to INR 1.27 lakh crores and disbursements over INR 40,000 crores. The company demonstrated improved asset quality with net NPA at 0.25% and reduced its cost of funds by 35 basis points, leading to NIM expansion. Management outlined plans for cautious entry into PPP/HAM models and expects further cost of funds reduction, while addressing notional MTM losses and increased operating expenses.

Highlights

  • Loan book grew to INR 1.27 lakh crores in FY25, significantly up from INR 82,000 crores in FY24 and INR 24,000 crores in FY23.

  • Disbursements slightly exceeded INR 40,000 crores in FY25, more than doubling from INR 17,000-18,000 crores in the previous year.

  • Net NPA reduced to 0.25%, with a commitment to resolve INR 2,000 crores of NPAs within 18 months.

  • Cost of funds reduced by 35 basis points in FY25, from 7.1% to 6.75%.

  • NIM improved from 3.18% to 3.22% in FY25, ROA improved from 2.42% to 2.44%, and ROE achieved 15%.

Concerns

  • The company recorded notional MTM valuation losses of INR 400 crores for the whole year due to hedging activities and dollar movement.

  • Q4 disbursements saw a slight sequential decline, though annual disbursements were robust.

  • Operating expenses (opex) saw a meaningful spike due to reclassification of expenses and the recruitment of 63 new employees.

Key financials

2 periods

Headline

  • Net NPA
    0.25%
  • Cost of Funds
    6.8%
  • NIM
    3.2%
  • ROE
    15%
  • CRAR
    50%

FY25

  • Loan Book
    ₹1.27L Cr
    YoY +54.9%
  • Disbursements
    ₹40,000 Cr
    YoY +122.2%
  • MTM Losses
    ₹400 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 6.8% · Maturity: EBR bonds maturing in 2028-29.
    • Rate reset Reduced cost of fund by 35 basis points from 7.1% to 6.75% in FY25.
    • New borrowing Leveraging 54 EC capital gain exempt bonds and INR 5,000 crores zero coupon bonds to further reduce cost of funds.
    • Refinance Plan to raise more fixed rate bonds and retire high-interest term loans from banks.
    EBR is going to mature in 2028-29, madam.
  • Liquidity Liquidity disclosed CRAR is around 50% and debt equity ratio is less than 6%, indicating strong financial health for growth.
    Our financial ratios are very strong. Our CRAR is slightly around 50%. Then our debt equity ratio is less than 6%.

Guidance & targets

Loan Book

  • Loan Book Target Loan Book · FY26 · High confidence ₹1.5 lakh crores
    We had kept a long-term target of INR3 lakh crores loan book by 2030 and INR1.5 lakh crores loan book by FY '26.

    — Sanjay Kulshrestha

  • Long-term Loan Book Target Loan Book · 2030 · High confidence ₹3 lakh crores

    — Sanjay Kulshrestha

Profitability

  • NIM Guidance Profitability · FY26 · Medium confidence around 3.25% (maybe 3.3%)
    We are maintaining our NIM rather improving from 3.18% to 3.22% during last financial year. And I think we will be remaining around these figures only, maybe around 3.25%.

    — Sanjay Kulshrestha

Cost of Funds

  • Cost of Funds Reduction Cost of Funds · FY26 · Medium confidence another 10-15 basis points
    So that may be a possibility that we will be further cutting down of the cost of fund. And now the government has given a window of 54 EC. So all these things, if you factor in, so we are hoping that another 10, 15 basis points on weighted average cost can be reduced during the financial year.

    — Sanjay Kulshrestha

Lending Mix

  • Infrastructure Lending (RBI Guidance) Lending Mix · this year · High confidence 75%
    So this year, I think we will be easily achieving this 75% as advised by the RBI.

    — Sanjay Kulshrestha

Asset Quality

  • NPA Resolution Asset Quality · within 18 months · High confidence ₹2,000 crores
    And we are committed to resolve all these kind of NPAs in 18 months and all efforts are made.

    — Sanjay Kulshrestha

  • NPA Recovery Asset Quality · current financial year · Medium confidence ₹400-500 crores
    And we are optimistic that we will recover around INR400 crores to INR500 crores from the resolution of the NPAs during the current financial year.

    — Daljeet Singh Khatri

What to watch in Q1 FY26

NPA Resolution Progress

Next quarter / Current FY
Current INR 2,000 crores NPAs targeted for resolution within 18 months; INR 800 crores NCLT orders received.
Target Progress towards INR 400-500 crores recovery in Q1/Q2 FY26.

Why it matters

Directly impacts asset quality and bottom line, demonstrating execution on commitment.

And we are committed to resolve all these kind of NPAs in 18 months and all efforts are made.

Risks & concerns

  • Global uncertainties and currency fluctuation leading to MTM losses

    medium

    Notional MTM valuation losses of INR 400 crores in FY25 due to hedging and dollar movement (INR 88 to 85).

    Management acknowledged

  • Competitive lending environment

    medium

    The company operates in a very competitive segment, leading to cautious growth targets.

    Management acknowledged

  • Lack of clarity on PMAY 2.0 disbursements from states

    medium

    PMAY 2.0 disbursements are not yet factored into targets due to insufficient clarity from state governments.

    Management acknowledged

  • Sensitivity of NPA resolution in specific regions (J&K)

    medium

    INR 28-29 crores NPA in J&K is in a sensitive state, requiring a cautious approach for resolution.

    Management acknowledged

Q&A highlights

6 direct
Growth targets and potential to surpass FY26 loan book target Direct
So INR1.5 lakh as of now, you are right that it seems to be an achievable figure. But let's see. Let's cross the second quarter. Then if there is something to update, then we are ready to update that thing because there is something which is in preparation, including the Urban Challenge Fund or PMAY 2.0. So all these opportunities are there in the market. We had not factored these kind of opportunities because we don't know whether this disbursement will be coming in this financial year or next financial year. So that's why we had capped this INR1.5 lakh crores.

Analyst questioned if the company's strong growth trajectory could lead to exceeding the FY26 loan book target, prompting management to clarify the current target and potential for revision based on new opportunities like PMAY 2.0.

Asked by Shweta, Elara Capital

Impact of PMAY 2.0 on growth run rate Direct
See, PMAY 2.0, it starts from the Government of India, go back to the state government, then the work will start. So that's why we had not factored in. But I'm sure that some disbursement will come in times to come. But since there is very little clarity on the states, that's why we had not factored that PMAY 2.0. So if it comes and there is a visibility, we will be able to revise our target upward from INR1.5 lakh crores.

Analyst inquired about the timing and impact of PMAY 2.0 disbursements, to which management stated it's not yet factored into current targets due to state-level clarity, but could lead to an upward revision.

Asked by Shweta, Elara Capital

Sequential NII drop, cost of funds, and EBR bonds Partial
We had improved our total cost of fund from 7.25% to sorry, 7.1% to 6.75%. So it is a reduction of 0.35 basis points. But at the same time, EBR is a pass-through kind of arrangement and government is taking care of the repayments of the EBR. But yes, you are right. In arithmetic, if you see because the total borrowing, those bonds were borrowed slightly more than 8% of the cost.

Analyst sought clarification on the sequential decline in NII and the influence of EBR bonds on cost of funds, leading to management explaining the cost reduction and the nature of EBRs.

Asked by Shweta, Elara Capital

Accounting for MTM valuation losses Direct
Actually, there are 2 parts in the MTM -- I mean, MTM gain and losses on fair valuation on foreign exchange transactions. And these detailed calculations are done by the bankers and vetted by our consultant, which is Deloitte. There are 2 components. One shows the MTM gain or loss on account of the movement in the dollar vis-a-vis INR. And the B part, that is derived assuming if the entire transactions are unwinded today and if we have to again enter into those transactions or contracts what is going to be the gain or loss on that. But both are notional as of now.

Analyst questioned the nature and accounting of the INR 400 crores MTM losses, which management clarified as notional losses from hedging and currency fluctuations.

Asked by Ramesh Damani, RSD Finance Limited

Details of NPA accounts and resolution Partial
Yes. There is one KVK Nilachal Power Pvt. Ltd. So total NPA amount is INR348 crores. Then Konaseema is there, it is INR102 crores. In first case, PFC is the lead. In second case, IDBI is the lead. Then there is one Sri Maheshwar project in Madhya Pradesh, where the PFC is the lead. It is also resolved and things are going ahead. Then there is one Nagarjun Oil Corporation Limited. So we are exposed to INR350 crores. IDBI is the lead. For that also the liquidation order is approved by the NCLT.

Analyst requested specific names and details of the large NPA accounts, providing insight into the company's stressed assets and resolution progress.

Asked by Shweta, Elara Capital

NPA cycle with increased private sector exposure Direct
See, while starting this PPP or HAM or BOT, whatever the models are, so we will be very, very selective in terms of the entities, in terms of the project or segment and in terms of the concessionaire agreements and the comfort that how the revenue flow will come and what will be the fallback arrangement.

Analyst raised concerns about potential NPA risks from new private sector projects, leading management to detail their highly selective and cautious approach to mitigate such risks.

Asked by Shweta, Elara Capital

Reason for the spike in operating expenses Direct
Yes. But as you said, one of the reason is because of the recruitment of another 63 executives in the company because of which the employee-related expenses as well as establishment-related expenses also rise to that extent.

Analyst questioned the significant increase in opex, and management attributed it to reclassification and the hiring of 63 new employees for capacity building.

Asked by Shweta, Elara Capital

Significance of MOUs and conservative loan book targets Direct
So regarding MOU, this is our continual affair that we engage with the states and try to support them in identification of the project and come out with a financial model which will support them. MOU doesn't mean that the projects are sanctioned. So it is the first step towards the understanding that HUDCO will be the partnering lending agency for funding these kind of projects. So there may be some time because some projects may come in first year, then second year and then the third year. These MOUs are generally for next 5 years of the time.

Analyst inquired about the large MOUs signed and the seemingly conservative loan book target, prompting management to clarify MOUs as business development tools and the target's basis on financial ratios and current visibility.

Asked by Sumeet Rohra, Smartsun Capital Private Limited

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Detailed narrative

Strategic Role and Growth Trajectory

HUDCO, a 55-year-old NBFC-IFC, plays a strategic role in India's infrastructure development under the Ministry of Housing and Urban Affairs. The company's loan book grew significantly from INR 24,000 crores in FY23 to INR 1.27 lakh crores in FY25, with disbursements exceeding INR 40,000 crores in FY25. Management aims for a loan book of INR 1.5 lakh crores by FY26 and INR 3 lakh crores by 2030, driven by government initiatives like the Urban Challenge Fund, which projects INR 4 lakh crores of investment.

Asset Quality and Resolution Efforts

HUDCO has maintained a strong focus on asset quality, achieving a net NPA of 0.25% in FY25. The company is committed to resolving INR 2,000 crores of NPAs within 18 months, with INR 800 crores of NCLT orders already received. Key NPA accounts include KVK Nilachal Power (INR 348 crores), Konaseema (INR 102 crores), and Nagarjun Oil Corporation (INR 350 crores). Management expects to recover INR 400-500 crores from NPAs in the current financial year.

Cost of Funds and Margin Management

The company successfully reduced its cost of funds by 35 basis points in FY25, from 7.1% to 6.75%, through strategic tapping of different sources and tenures. NIM improved from 3.18% to 3.22% in FY25, with a target to maintain it around 3.25-3.3%. Management anticipates a further 10-15 basis points reduction in cost of funds in FY26, leveraging new instruments like 54 EC capital gain exempt bonds and INR 5,000 crores zero coupon bonds.

New Business Models & Private Sector Funding

HUDCO plans to venture into PPP and HAM models for private sector funding with a very selective approach. The focus will be on A-rated entities, projects with good cash flow, and robust concessionaire agreements. This cautious strategy aims to avoid past mistakes and ensure no compromise on asset quality, with third-party agencies supporting appraisal and monitoring. There is no specific target for private sector projects, emphasizing quality over quantity.

Regulatory Compliance and Capital Adequacy

The company maintains strong financial ratios, with a CRAR of approximately 50% and a debt-equity ratio of less than 6%. HUDCO is well-placed to meet the RBI's guidance of 75% infrastructure lending (including affordable housing) this year, having already achieved 70%. Management believes the company's strong capital position will support growth without immediate need for external capital infusion.

Operational Efficiency and Capacity Building

HUDCO is transitioning to a paperless office and reducing turnaround times. The company has also invested in capacity building by recruiting 63 new employees, which contributed to a spike in operating expenses in FY25, alongside reclassification of certain costs. This investment is aimed at enhancing internal capabilities and capacity to support future growth.

MTM Valuation and Currency Impact

The company reported notional MTM valuation losses of INR 400 crores for the full year FY25, primarily due to hedging activities and the movement of the US dollar against the INR (from 88 to 85). Management clarified these are notional calculations with no cash outgo, and are influenced by global uncertainties and currency fluctuations beyond the company's direct control.

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