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HG infra reported good set of numbers for 1QFY24 driven by strong execution across its orderbook delivering 19% YoY growth in revenue. While the numbers were marginally below our estimates, we believe that trend in robust execution amidst good orderbook, stable margins and healthy balance sheet is likely to continue. The management indicated that it is likely to receive the required approvals for the sale of 4 HAM assets in this month and the deal is likely to be concluded soon. We have upgraded our EPS estimates by 9%/12% for FY24 and FY25 respectively. We value HG Infra based on SOTP method wherein we have valued EPC business at 12x FY25 PAT and asset business as 0.8x FY25 P/B to arrive at our revised target price of Rs1,283.

1QFY24 result highlights

Revenue at Rs12.7bn, increased by 19.3% on YoY basis, however, it was 4.6% below our estimate. EBITDA margins at 16.1% improved by 86bps YoY, largely in-line with our estimate. Absolute EBITDA came in at Rs2bn up 26% YoY. Adj PAT at Rs1.1bn increased by 21.2% YoY against our expectation of 33% growth on account of lower other income and higher depreciation. Healthy orderbook with book to bill ratio of 2.5x HG infra’s orderbook stood at Rs116.7bn as on 30th June 2023. Highway projects constituted 89% of total OB whereas the rest was from Railways and metro segment. HAM projects constituted 47% of OB whereas rest were EPC projects. Private projects (Adani projects) constituted 30% of OB. The management has guided for Rs70-80bn of order inflow this year, out of which Rs20bn is expected from non-road segment.

Asset monetization imminent

HG infra is in advanced stage of receiving approvals for stake sale from lenders and NHAI for four HAM assets. The approvals are likely to come in by 31st August 2023 and the conclusion of deal is expected soon. Total equity investment for these projects stood at Rs3.5bn and expected valuation is close to 1.4x P/B. This is likely to free up capital for future growth.

SOTP based TP of Rs1,283, maintain BUY

We believe that HG infra has the required tenets of a successful EPC player in the country which can deliver consistent 15-20% growth with good cash flows and probable recycling of assets resulting in better balance sheet. We are building in 19% revenue and PAT growth for the company over FY23-25 with 16% EBITDA margins. We have valued the stock based on SOTP method wherein we value EPC business at 12x FY25 PAT and asset business at 0.8x P/B to arrive at our TP of Rs1,283 .

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