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Growth momentum to continue

Our view

H G Infra Engineering Ltd (HGINFRA) reported healthy revenue of Rs10.1bn beating our and street estimates on the back of strong execution of its under?construction projects. During 1Q the company bagged Ganga Expressway order worth Rs45bn thereby taking the order book to Rs115bn (3.1x TTM revenue). Further, given strong bid pipeline of Rs70bn, management expects to bag orders worth Rs50?60bn in FY23E. On the back of strong order book, robust bid pipeline and balance 3 HAM projects expected to receive AD by 1HFY23 leading to entire OB under execution, management maintained it earlier guidance of Rs50bn/ Rs60bn for FY23E/24E with EBITDA margins in the range of 15.5?16%.

We remain positive on the company given its 1) comfortable order book (~Rs115bn as on 1QFY23), 2) strong execution capabilities, 3) comfortable working capital cycle, 4) geographical diversification and 5) its transition into full?fledged contractor and focus on asset monetization. We expect the company to post revenue/EBIDTA CAGR of 11%/12% over FY22/FY24E. At CMP, the stock trades at a P/E of 10.8x/8.9x on FY23E/FY24E EPS and an EV of 6.1x/5.2x FY23E/FY24E EBITDA. We maintain BUY rating with a target price of Rs837/share, implying an upside potential of 43% from the current levels.

Result Highlights

* For Q1FY23, HGInfra’s revenues grew by 16.9%/3.9% YoY/ QoQ to Rs10.7bn (beating our/ street estimates of Rs10.1bn/ Rs10.0bn) led by strong execution momentum across its key projects.

* EBITDA came in at Rs1.6bn up 9.4% YoY (in line with our estimate), with EBITDAM contracting 100bps to 15.2% (below Ysec estimate of 15.7%) on account of ongoing inflationary raw material cost.

* On bottom?line front, adj. PAT came at Rs976mn (beating our estimates of Rs829mn) driven by lower depreciation and finance cost.  

* During 1QFY23, the company bagged order for Ganga Expressway worth Rs49.7bn and has received A.D for 2 HAM projects Raipur Visakhapatnam OD?5 and Raipur Visakhapatnam OD?6 worth Rs26.1bn.  

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