Buy HG Infra Engineering Ltd For Target Rs.885 - ICICI Direct
Strong execution; healthy growth outlook…
About the stock: HG Infra Engineering is a Jaipur (Rajasthan) based infrastructure company with primary focus on roads and allied sectors. Additionally, the company is actively looking to diversify itself by targeting the railways, airport and water infra segment.
* Reported 28.8% revenue CAGR during FY16-21; operating margin improved consistently from 11.0% in FY16 to 16.2% in FY21
* Proficient management, net debt free, superior return ratio (RoCE/RoE: >20%)
Q2FY22 Results: HG Infra reported a strong set of numbers for Q2FY22.
* Standalone revenue improved 60.4% YoY to | 749.6 crore, backed by its strong executable order book position, pick-up in execution post secondwave disruptions, and receipt of appointed date in most of its projects
* EBITDA was at | 121.8 crore, up 58.3% YoY, with margin at 16.3%
* PAT was at | 69.8 crore (up 113.8% YoY)
What should investors do? HG Infra’s share price has grown 2.8x over the past three years (from ~| 267 in March 2018 to | 740 levels in November 2021).
* We maintain BUY rating on the company
Target Price and Valuation: We value HG Infra at a target price of | 885
Key triggers for future price performance:
* HG is likely to be one of the major recipients of thriving roads, railways and water supply segments. Healthy order inflows to aid its order book position
* Strong order book position, receipt of appointed date in most of its projects, and execution pick-up to translate into 24.3% topline CAGR over FY21-23E
* Current order mix with built-in raw material price variation clauses in most of its contracts provides margin sustainability at ~16%
* Double-digit return ratios and lean balance sheet position
Alternate Stock Idea: Besides HG Infra, we like NCC in the infra space.
* Play on execution pick-up and improving balance sheet
* BUY with a target price of | 100/share
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