Healthy Performance; Maintain BUY
H.G. Infra Engineering (HGIE) has reported a strong set of numbers for 1QFY19, with its net profit growing by 40% YoY to Rs270mn (vs. our estimate of Rs215mn) led by better operating performance. Led by pick-up in order book and execution, its revenue grew by 36% YoY (-11% QoQ) to Rs4.5bn. Notably, yearly growth is not comparable as revenue was gross in 1QFY18, while reported revenue of 1QFY19 is net of GST. However, adjusted revenue grew by over 50% YoY. EBITDA grew by a strong 46% YoY (-15% QoQ) to Rs671mn, while EBITDA margin expanded by 98bps YoY to 14.9%. Outstanding order book increased to Rs53bn vs. Rs44bn in 4QFY18 led by single order inflow worth Rs14.7bn in 1QFY19. We continue to maintain our positive stance on HGIE considering healthy growth prospects and strong profitability ratio. However, a substantial rise in receivables over last couple of months could be a cause of concern. Completion of land acquisition and receipt of Appointment Date for HAM project could be a near-term trigger for the stock, in our view. Upwardly revising our earnings estimates by 12%/11% for FY19E/FY20E to factor in strong execution and higher inflow, we maintain our BUY recommendation on the stock with a revised Target Price of Rs405.
Strong Revenue on Superior Execution
Led by a strong order book (78% CAGR over FY16-FY18) and strong execution, HGIE’s revenue surged by over 50% YoY (on adjusted basis) to Rs4.5bn. EBITDA grew by a strong 46% YoY to Rs671mn, while EBITDA margin expanded by 98bps YoY to 14.9%. Looking ahead, we expect HGIE’s growth momentum to continue on the back of low base and consistent addition of fresh orders and revenue is expected to clock 35% CAGR through FY18-FY20E.
Order Book Remains Healthy; Strong Inflow Persists
While HGIE witnessed an order inflow of Rs14.7bn in 1QFY19 (against total inflow target of Rs30- 40bn in FY19), outstanding order backlog as on 30th Jun’18 improved to Rs53bn (3.8x of FY18 revenue) that provides strong growth visibility. Considering current bid pipeline of Rs250bn, we believe inflow target can be achieved. HGIE intends to add Rs10bn of HAM orders out of total inflow target in current fiscal.
Outlook & Valuation
HGIE has been gaining a healthy traction for last two years on the back of consistent order book addition and improving execution expertise. Further, with the improvement in financial prequalification post fund raising and enormous opportunity in its key vertical, we expect HGIE’s earnings to clock a robust 45% CAGR over FY18-FY20E. We believe the current valuations at 12.9x/9.0x EPS of FY19E/FY20E, look attractive considering less than 1x PEG ratio and strong return ratios. Thus, we maintain BUY recommendation on the stock with a revised Target Price of Rs405.
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