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Heathy execution; strong growth outlook…

About the stock: HG Infra Engineering 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 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%).

Q1FY22 Results: HG Infra reported a healthy performance in Q1FY22.

* Standalone revenue improved 206% YoY to | 911.7 crore, albeit on the washout base of Q1FY21. On a QoQ basis, topline declined merely by 11.3% aided by a) comfortable order book position and b) pick-up in execution with receipts of appointed date in most projects

* EBITDA was at | 148.5 crore, up 202.3% YoY, with margin at 16.3%

* PAT was at | 88.8 crore (up ~6x YoY)

What should investors do?

HG Infra’s share price has grown 114% over the past three years (from ~| 267 in March 2018 to | 571 levels in August 2021).

* We maintain BUY rating on the company

Target Price and Valuation: We value HG Infra at a target price of | 675

Key triggers for future price performance:

* It is likely to be one of the major beneficiary of thriving roads, railways and irrigation segments. Healthy order inflows to aid its order book position

* Strong order book position, receipt of appointed date in most projects and execution pick-up to translate into 22.4% 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 ~15.5-16%

* 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 | 105/share

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