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Decent performance; Outlook bright
HG Infra Engineering Ltd delivered decent performance during Q4 FY19 with standalone revenue growing ~15% yoy. Its operating margin improved to 16.1% (up 45bps yoy), aided by benign contract and site expenses. However, higher depreciation expense and tax outgo impacted its bottomline performance. At the end of FY19, the company’s order book stood robust at ~Rs.62bn (3.1x FY19 revenues), backed by Rs.39bn of inflows secured in FY19. The company expects momentum in order inflows to continue, and targeting ~Rs.50bn of new order inflows in FY20. With current order book (having average execution period of ~2.5 years) coupled with expected inflows over next one year, the company is poised for strong growth. Operating margin is likely to remain healthy at ~15% given current mix of order book. Also, repayment of debt aided by strong cash flows is likely to improve bottomline performance. We expect the company to clock topline and PAT CAGR of 23% and 36% respectively over FY19-21E. At CMP, the stock is trading at 8.4x FY21E P/E. We recommend a BUY rating on the stock for target price of Rs.351 (based on SOTP valuation).
Strong order book in hand to drive performance
HG Infra has witnessed strong order inflows of Rs.39bn in FY19, which strengthened its overall order book position to Rs.62bn. Out of this total order book, just 37% of the project (value) is contributing to the overall topline. The company expects receipts of appointed dates in balance projects (worth Rs.39bn) by Oct’19. This should start contributing significantly from Q4 FY20 onwards. This places company for strong growth in FY20 and FY21E. We expect company to deliver 23% topline growth over FY19-21E with stable operating margin at ~15%.
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