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HG Infra reported Rev/EBIDTA/APAT beat of 1/3/8.5% vs our estimates. Higher EBIDTA margins (+35bps vs estimate), stable interest cost/depreciation resulted in APAT beat. We maintain BUY on HG with SOTP of Rs 441/Sh, valuing the EPC business at 12x FY21E EPS.
* Inline Rev/EBIDTA, APAT beats estimates: HG infra reported Rs 4.7bn of revenue during 2QFY20. EBIDTA margins expanded 94bps YoY to 15.5%. EBIDTA beat stood at 3%. Flat YoY Depreciation, YoY dip in Interest cost and lower tax rate (new ETR) resulted in APAT beat.
* About 51% of order backlog yet to commence execution: HG has Rs 62bn of order backlog of which Rs 32bn is yet to move into execution (2 HAM projects and 2 EPC packages). All these projects are expected to receive ‘Appointed Dates’ in 3QFY20 with land acquisition in advance stages. This coupled with ramp-up in execution of Hapur Moradabad project may help HG achieve a 25-30% revenue growth in FY20. Pending HAM equity requirement is ~Rs 2.5bn spread across FY20-21E.
* De-leveraging target for FY20E on track: HGs gross debt stands at Rs 3.4bn (including Rs 0.4bn in promoter loans) vs. Rs 3.5bn QoQ. Of HGs Rs 1.8bn debtors outstanding in the World Bank funded Rajasthan State project as of 1QFY20, the company received Rs 1.2bn during 2QFY20. Ramp-up in execution in Hapur Moradabad project (Rs 3bn expected during FY20E) coupled with mobilization advance (in excess of Rs 1bn) from projects awaiting ADs, HG is working towards its FY20E target gross debt level of Rs 2.5bn (Rs 1bn reduction vs. 1HFY20).
HG delivered an inline performance during 2QFY20. About Rs 32bn of orders are expected to move into execution during 3QFY20, leading to a strong pickup in revenue from 4QFY20. The EPC bid pipeline is robust (HG hopes to secure EPC orders of ~Rs20bn and HAM orders of ~Rs10bn during 2HFY20). HG has received FC for its 2 HAM projects from 2 leading banks, highlighting the company’s ability to secure funding in a market which values Infra companies with strong execution capabilities as well as strong financial health. We maintain BUY. Key risks
(1) Further delay in NHAI ordering activity;
(2) Delay in appointed dates for the company’s HAM and EPC projects
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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