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Asset monetisation to boost scalability!

About the stock: HG Infra Engineering Ltd is a Jaipur (Rajasthan) based infrastructure company having primary focus on Roads and allied sectors. Additionally, the company is actively looking to diversify itself by targeting into railways and water infra segment.

* Reported 26% revenue CAGR over FY18-23 with improved operating margin.

* As on FY23, order book stood at | 12595 crore (2.9x book to TTM revenues).

Key Investment Thesis:

* Healthy book to drive robust execution ahead: As on FY23, HG Infra’s order book stood robust at | 12595 crore (2.9x book to TTM revenues). It is looking for inflows worth | 8000-9000 crore in FY24 (to maintain book to bill above ~2.5x), driven by a strong order pipeline in roads segment and growing opportunities in the other infrastructure verticals such as railways, and water supply. On the execution front, the company expects strong execution pace to continue driven by its robust order book position. With these, the company has guided for ~23% YoY growth during FY24. Strong order book position, receipt of appointed date in most of its projects, and execution pick-up to translate into ~17% topline CAGR over FY23-25E. Furthermore, current order mix with built-in raw material price variation clauses in most of its contracts provides margin sustainability at ~15.5%.

* Asset monetisation inked; to boost scalability: H.G. Infra has executed a Share Purchase Agreement with Highway Infrastructure Trust (sponsored by KKR) for sale of its 4 HAM projects. The Enterprise Value of the transaction is | 1,394 crore (with ~| 531 crore. equity value). With | 343 crore of equity investment, the valuation of deal is done at ~1.55x Price to Book. This deal will strengthen the balance sheet of the and will help HG to release capital for future growth and drive scalability. On debt front, the company expects the debt to come down to | 350 crore in FY24 from | 504 crore, driven by healthy cash generation

Rating and Target Price

* Considering its healthy executable order book position and robust execution skill, we expect execution pace to remain robust in the near-tomedium term along with sustained margins amid softened input prices and better project mix. Additionally, strong return ratios, healthy working capital cycle and asset monetisation remains key positive.

* We maintain our BUY rating

* We value HG Infra at | 1150 per share (on SoTP basis)

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