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Cost of keeping Hudco headless undermines its m-cap, sends out wrong signals to the market

By Rakesh Ranjan- 30 Aug 2021
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New Delhi (30.08.2021): In the next few days, come September, it will be two years since Hudco, the premier government organization for financing housing needs of weaker and low-income groups, has been without a regular CMD after the departure of IAS officer Dr. Ravikanth in September 2019.

To avoid this situation, he could have been retained till the age of 60, but mysteriously that did not happen even though he belonged to the IAS and resigned from the top civil service to take the responsibility of the public housing company.

Of course, in the intervening period, the government has seen to it that the organization keeps getting stop-gap CMDs by appointing IAS officers from the MoHUA. But this is not seen as good governance, much less reflecting the government's undoubted commitment to meet the most challenging housing needs of the weaker and low-income groups.

The failure of the MoHUA to find a suitable candidate for the CMD post has triggered a lot of conspiracy theories. It is said that a section of the MoHUA officials has been deliberately not finding a candidate for the job to further its own agenda. What's that agenda is a matter of a lot of speculations.

Whatever be the agenda, the HUDCO has suffered as reflected in its stock price movement on the BSE and NSE. While the Sensex jumped 50.34% between September 1, 2019, and August 27, 2021, Hudco posted a measly rise of 16.12%, about 35 percentage points lower than the Sensex. Even compared to the housing finance sector which suffered on account of the DHFL scam, its performance has been below par.

The application of the stock market matrix puts the fair value of a Hudco share at anywhere between ₹96 to ₹121, while it is currently priced at ₹42.15. In the last one year, its price fluctuated between the high of ₹55.45 and the low of ₹30.60.

It may be underlined that HUDCO went for IPO in May 2017 and investors invested in a big way, and as a result, IPO got oversubscribed by 80 times, the first of its kind for a public-sector company. Experts say that had there been a continuity in the management at the top the result could have been far better today.

The cost of keeping the CMD post vacant looks alarming if one looks at the performance of Hudco in the last one year also. During this period, Hudco shares generated for the shareholders a return of 11.36% versus the sector return of 45.29% and the Sensex return of 43.49%.

Will not it be desirable and legitimate to hold someone accountable for this poor performance of Hudco shares? The huge loss of market capitalization of Hudco, which is a direct loss to the taxpayer and the government, could be directly linked to the absence of a full-time CMD. Stock market data show that Hudco shares moved through a lot of volatility because of the market's lack of confidence in Hudco management. On 116 days its shares rose 282.75% and on 133 days it declined 270.05%. This kind of surge and decline in the price of a share takes place only when the market lacks confidence.

At a time when the government is hard-pressed to mobilize resources through the stock market, keeping the Hudco top post may amount to shooting in one's own foot by sending out a totally and easily avoidable signal.

Fair play and legitimacy demand that the government at the top level figure out why the Hudco top post has been vacant for so long, why the PESB failed to pick up a suitable candidate, and why even a search-cum-selection committee has not been able to discharge its obligations in this respect. 

After Dr. Ravikanth's senseless and graceless departure stated to have been orchestrated by someone who thought of himself as the Godfather of the Ministry, may it be noted that three different ad-hoc CMDs in M Nagaraj, Director (Corporate Planning) of the company; Shiv Das Meena (1989 batch IAS) and Kamran Rizwi (a 1991 batch IAS), both additional secretaries of MoHUA have run Hudco.

That they have done their job to keep the company running is not the point, nor the issue.

Since ad hoc appointments can't be a substitute for full-time appointments, the MoHUA will favor itself and the taxpayers and shareholders who own Hudco by finalizing its choice of candidate for Hudco's CMD. Already a damaging perception has emerged that the post is jinxed. Better avoid such follies in the interest of the PM's promise of good governance and the people's entitlement to it.

(By Rakesh Ranjan)

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