Are HUDCO latest results good or bad?

HUDCO's latest financial results for Q2 FY26 present a complex picture of growth and profitability challenges. The company reported a net sales growth of 27.85% year-on-year, reaching ₹3,219.03 crores, which marks the highest quarterly revenue in its recent history. This growth reflects robust demand in the affordable housing sector, supported by strong loan disbursements and interest income generation. Sequentially, net sales also grew by 9.59% from the previous quarter, indicating continued momentum.
However, this revenue strength is tempered by significant margin compression. The profit after tax (PAT) margin fell to 22.05%, a decrease from 27.35% in the same quarter last year, highlighting rising funding costs and competitive pressures. The gross profit margin also deteriorated sharply to 29.75%, down from 39.82% year-on-year, driven by a notable increase in interest expenses, which rose by 29.17% year-on-year, outpacing revenue growth.

In terms of return on equity (ROE), HUDCO reported a figure of 15.08%, which shows an improvement from its five-year average but must be viewed in the context of the company's high leverage, with a net debt to equity ratio of 5.97 times. This elevated leverage raises concerns about financial stability, particularly in a rising interest rate environment.

The company also experienced negative operating cash flow of ₹-31,602 crores, primarily due to aggressive loan book expansion, indicating a reliance on continuous access to funding markets. This situation underscores the potential risks associated with its capital-intensive growth strategy.

Overall, while HUDCO's revenue growth is commendable, the accompanying margin compression and high leverage introduce significant challenges. The company has seen an adjustment in its evaluation, reflecting the market's cautious stance amidst these operational trends. Investors should monitor future results closely for signs of margin recovery and effective management of leverage.