Broker’s Call: H.G. Infra Engineering Ltd (Buy)

Target: INR 950

CMP: 881.10 Indian Rupees

HG Infra Engineering Ltd (HGIEL) has a strong order book of Rs. 12,595 crore (as of 31st March), of which 55 per cent is EPC road projects and the remainder is HAM road projects. About 69 percent of the total projects are from the Government of India and the rest are from the private sector, which means seeing revenues in the next two to three years. We expect the company to post 20 percent revenue growth over the next fiscal year 22 to 25.

In the union budget 2023-24, capital expenditures have been increased by 25 percent for road sectors, 27 percent for Jal Jeevan Mission (JJM) and 49 percent for railways, creating much more opportunities for companies like HG infra. The company is also diversifying into sectors other than roads to take advantage of these vast opportunities. The company expects a revenue contribution of 20-25 per cent from sectors other than roads. The bid pipeline is also strong in the road, JJM and rail sectors. Management expects order inflow of Rs 8,000 to 9,000 crore in FY24 with EBITDA margins in the range of 15-16 per cent.

Recently, the company converted HAM’s assets to 1.55 times the equity invested in four special purpose companies, which bodes well for the company. This will ensure the injection of capital into prospective HAM projects. also. The company posted good numbers in the fourth quarter of fiscal 2013 with revenue / EBITDA / APAT growth of 43 percent / 52 percent / 62 percent, respectively. We continue to like the company’s ability to execute, its order book location, its healthy balance sheet and its high rates of return and we expect revenue / EBITDA / APAT to grow at a compound annual growth rate of 20 percent / 18 percent / 20 percent respectively during fiscal year 22-25 .