Buy HG Infra Engineering Ltd For Target Rs..959 - Anand Rathi Share and Stock Brokers
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Sturdy execution, healthy additions; retaining a Buy
On the recent appointment of some keys orders, HG’s Q3 operations scaled up materially and growth wasn’t without profitability. Its maiden success with an order in the non-roads segment renders the quarter all the more appealing. Collections couldn’t keep up with heightened activity and equity infusion needs. Consequently, leverage rose, but the balance sheet is still sturdy. Success in efforts to monetise hybrid annuity assets would be good. On the expected better execution, well-set balance sheet and reassuring valuation, we retain our Buy rating with a TP of Rs959.
Forays into metro-rail. Success with a hybrid annuity of ~Rs8.5bn EPC potential hold good, but maiden success with an order in the non-roads segment (metro-rail of ~Rs3.5bn) makes Q3 more appealing. This sets the ball rolling, and management looks to take non-roads to ~25% in its OB in three years. With Q3 ~Rs12bn additions, the OB rose ~Rs2bn q/q to ~Rs111bn. Management looks to add Rs30bn-40bn more in Q4 to add to its 9M’s ~Rs56bn, and augment assurance further. For this, it has its eyes set on bids of Rs150bn placed, and an identified prospects pipeline of ~Rs800bn. Bids placed and identified prospects comprise non-road opportunities of ~Rs105bn (in the ~Rs950bn total).
Monetisation, progressing. With technical due diligence underway for the four hybrid annuities, efforts are progressing. Subject to this, a share-purchase agreement could take a month, and NoCs/requisite approvals could then take another three months. If all goes as planned, and valuations match, management hopes to have cash in place by Sep’23.
Leverage up. More working capital for a greater scale of operations, ~Rs0.9bn capex and ~Rs1.1bn equity infused in hybrid annuities swelled net debt ~Rs1.1bn q/q to ~Rs4.6bn. On expected stronger collections and lower equity infusion/capex needs in Q4, the end-Q3 ~Rs4.7bn gross debt is envisaged at ~Rs4.3bn by end-FY23, notwithstanding 40-50% y/y higher envisaged Q4 FY23 revenue.
Valuation. FY23e earnings rise ~3% on incorporating 9M FY23 reported margin. FY24e, and FY25e change slightly on the rub-off. At the CMP, it (excl. investments) trades at a PER of 6.5x FY25e. Risk: Slower pace of execution.
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