Accumulate H.G. Infra Engineering Ltd. For Target Rs.1,611 - Geojit Financial Services
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Exploring new horizons...
HG Infra Engineering Ltd. (HG Infra) is one of the emerging EPC players in India, with over two decades of rich experience in road construction. It is primarily engaged in roads and allied sectors like flyovers, bridges, and irrigation.
* The order book remains healthy at Rs. 12,434cr (2.4x FY24 revenue), providing revenue visibility for the next 2 to 3 years.
* The company is strategically tapping new opportunities beyond the roads and has secured its maiden solar projects worth Rs 1,307cr in Rajasthan which will augur well for growth.
* Revenue grew by 11% YoY in Q4FY24, which is below our estimate due to a delay in project awarding by NHAI.
* The company expects an order inflow of Rs 11,000cr of new orders in FY25, and we expect the order book to grow at a CAGR of 29% over FY24-FY26E.
* The company guided top-line growth of 15-20% YoY in FY25 with an EBITDA margin of ~16%, aided by a strong order book. • Due to the recent uptick in price, we revise our rating to Accumulate and value the standalone business at a P/E of 16x FY26E and HAM projects at 0.8x P/BV with a TP of Rs.1,611.
Diversification to drive growth…
HG Infra’s order book remains healthy at Rs 12,434cr in FY24, which is 2.4x FY24 revenue and provides revenue visibility in the coming years. The company expects an order inflow of Rs 11,000cr to Rs 12,000cr in FY25. The company has received Rs 4,350cr orders in FY24, which is below the previous guidance given by the management due to a delay in project approvals by NHAI and the general election. Currently, the company is expanding its projects opportunities beyond the road and received its maiden order from a solar project worth Rs 2,340cr with a capacity of 543MW. The project will be done with a 65:45 JV with Stockwell Solar services. The company’s order book comprises; road (68%), rail (21%) and solar 911%). The majority of the orders are coming from UP (21%), followed by Jharkhand (20%), Rajasthan (11%), and AP (8%).The total equity investments in HAM projects stand at Rs 694cr and expected to invest Rs505cr in FY25E. We expect traction in new orders in FY25/FY26E which will aid its order book to grow at a CAGR of 29% over FY24-FY26E.
Execution to pickup pace...
In Q4FY24, revenue grew by 11.2% YoY to Rs1,635cr, which is below our estimate due to delays in project approvals by NHAI. However, the FY24 top -line grew by 16% YoY to Rs 5122cr. The management expects execution to pick up pace and guide top-line growth of 15–20% for FY25. We, therefore, marginally increased our revenue estimate by 1% and 4% respectively for FY25/26. The company expects appointed date for Jamshedpur projects of Rs 610cr (90% land available) and Tirupati project (90% land available) by June and September respectively. While Jharkhand pkg 10 and 13 of Rs 2,228cr by Q3FY25. EBITDA margin during the quarter stood at 16.2%, aided by benign input costs and improved execution. We expect margins to remain at a strong level of 15.5% to 16% for FY25/FY26 on account of pickups in execution.
Valuation & Outlook…
The increasing opportunities in road projects, along with a current order backlog at 2.5x FY24 revenue, ensure strong business visibility. The management is prioritizing the diversification of the order book and maintaining a healthy margin profile to drive future growth. Due to recent uptick in stock price, we revise our rating to Accumulate from BUY & value for standalone businesses at a P/E of 16x FY26E EPS and HAM projects at 0.8x P/BV with a TP of Rs.1,611.
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