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Strong order addition, monentisation on the radar; retaining a Buy

Its recent success with the Ganga Expressway EPC order from Adani has sufficiently bolstered HG's assurance, and its proven execution abilities keep us sanguine of an inspiring performance ahead. However, for it to realize the true potential of its life-high OB, timely receipts of appointed dates are critical. The comforting RoW status for most augur well. It realises the importance of churning assets to unlock capital for growth; thus, asset monetisation is being keenly considered. On the continuing healthy execution and re-assuring valuations, we retain our Buy rating, with a TP of Rs898 (a step up from Rs896)..

OB at life-high. The recent success with the ~Rs44bn Ganga Expressway order from Adani (excl. GST) makes it the company’s single largest EPC order, and ensured a strong start to the year. With this, the end-Q1 OB, at ~Rs115bn, is at an all-time high, and assurance is a sturdy ~3.1x TTM revenues. Timely receiving appointed dates for ~Rs64bn of the yet-to-be appointed orders is critical for it to realize the true potential of its OB. Envisaging a healthy pace of execution, and the need to replenish, orders of Rs50bn-60bn more are targeted for FY23.

Monetisation, keenness returning. With PCODs already in place for three hybrid annuity assets, and likely for the fourth in FY23, efforts have been gathering pace to monetise assets. Management realizes that churning assets is critical to unlocking capital for future growth, and is willing to settle for a discount not exceeding 10% of its estimated reasonable valuation.

Leverage rose, expected to moderate. The recent appointment of three hybrid annuities (since Mar’22), and consequent equity infusion needs (Q1: ~Rs1.75bn) hold the key to ~Rs2.8bn q/q higher net debt (at ~Rs4.4bn). Capex (~Rs0.45bn) and slow debt disbursals at hybrid annuity SPVs too had roles to play here. Nevertheless, with drawdown of mobilisation advances from the recent orders, and expected better payment cycles in H2, leverage is likely to moderate ahead.

Valuation. We retain revenue/operating profitability estimates, but earnings are altered a bit on taking FY22 actuals from the annual report. At the CMP, it (excl. investments) trades at a PER of 6.5x FY24e. Risk: Delayed appointed dates.

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