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Healthy execution; strong growth outlook…

HG Infra Engineering (HG Infra) reported a robust set of Q4FY21 numbers. Standalone revenue improved 65% YoY to | 1,027.8 crore, clearly reflecting the sharp pickup in execution aided by healthy order book position and normalisation of labour availability/raw material supply chain post Covid-19 related disruptions. Also, operating profit margin was at an elevated 16.2%, down 8 bps YoY, on account of better project mix. At PAT level, robust operating performance translated into 90.5% YoY growth (to | 97.7 crore).

Healthy order book position; execution pace to remain robust

HG Infra’s order book at the end of March 2021 was healthy at | 7,040 crore (2.8x order book to FY21 revenues), mainly backed by strong order inflows secured in Q4FY21 (bid project cost: | 2,564 crore; EPC value: | 1,933 crore). Going forward, the management has guided for order inflows of | 5,000- 6,000 crore in FY22 to be driven by a strong order pipeline in roads segment and growing opportunities in the other infrastructure verticals.

On the execution front, the strong momentum is likely to continue with a) its healthy order book position, b) receipt of appointed date in most of its projects, and c) desired level of labour/raw material on-site. With these, the management has guided for 25-30% growth in FY22E. Additionally, operating margin is likely to sustain at 15.5-16%, going ahead as escalation clause would ensure no major hit in margins owing to higher raw material prices.

Balance sheet to remain lean despite equity commitments

HG Infra’s balance sheet has remained lean over the years backed by its prudent strategy to mainly focus on an asset light business model and efficient manage working capital. At the end of March 2021, its gross debt/cash and cash equivalent at the standalone level was at | 289 crore, | 258 crore, respectively. Going forward, the company has an equity requirement of | 108 crore, | 355 crore mainly towards four underexecution, newly secured three HAM projects, respectively, which are required to spend over the next couple of years. Despite these, we expect its debt to remain at comfortable levels with healthy operating cash flow generation arising from improved profitability. Also, monetisation of its hybrid annuity assets would increase its ability to bag newer projects.

Valuation & Outlook

Considering its healthy executable order book position and robust execution skill, we expect a pick-up in execution momentum to continue in the nearto-medium term. Likewise, we revise our revenue estimate upwards for FY22 and FY23 while retaining elevated level of margins to the tune of 15.5- 16%. Its lean balance sheet position and healthy return ratios provide additional comfort. We maintain BUY rating on the stock with a revised SoTP target price of | 420 (earlier | 380).

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