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Bid pipeline robust; expect uptick in order intake

HG Infra’s (HG) 3QFY24 adjusted PAT at INR 1.15bn missed JMFe of INR 1.19bn (consensus: INR 1.18bn) due to higher depreciation/interest costs. Reported PAT of INR 2.06bn includes gain of INR 907mn (post-tax) on sale of 3 HAM assets to KKR. HG received INR 3.1bn for 3 HAMs while remainder INR 640mn is to be received by Mar-24. Monetization of 4th HAM is in process for which HG will receive INR 1.4bn by Mar-24. Order backlog moderated QoQ to INR 96bn (1.9x TTM revenue) as on Dec-23. Due to delay in receipt of ADs for 2 HAMs and prolonged monsoon, HG further lowered its revenue guidance from INR 54bn to INR 52- 53bn in FY24. While YTD inflows are weak at INR 10bn, HG FY24 inflow guidance of INR 60bn led by strong bid pipeline. Receipt of entire monetization proceeds by Mar-24 will strengthen balance sheet and provide growth capital. We expect 13%/11% revenue/EPS CAGR over FY23-26E. Valuation at 10.9x FY26E EPS remains inexpensive. The coverage stands transferred to Vaibhav Shah. Maintain BUY with a revised price target of INR 1190.

3QFY24 earnings missed estimate due to higher depreciation and interest costs: Revenue/EBITDA grew by 19%/13% YoY to INR 13.5bn/INR 2.14bn (in-line). EBITDA margins expanded by 20bps on adjusted base of PY to 15.9% (JMFe: 15.7%). Interest costs grew by 41% YoY to INR 226mn (JMFe: INR 220mn) due to rise in interest rates. Depreciation grew by 41% YoY to INR 367mn (JMFe: INR 360mn).

Order backlog moderates amid weak inflows; bid pipeline robust: HG’s order backlog moderated to INR 96bn (1.9x TTM revenue) as on Dec-23. HG has received inflows of INR 10bn in YTD but has maintained FY24 inflow guidance of INR 60bn backed by strong bid pipeline. HG has submitted bids of INR 140bn where bids are yet to open. It also has a robust bid pipeline from NHAI/MoRTH (INR 900bn), MSRDC (INR 480bn) and Railways (INR 250bn). Of these, HG targets to bid for projects of c.INR 600bn. Due to delay in receipt of ADs for 2 HAMs and prolonged monsoon, HG has lowered revenue guidance from INR 54bn to INR 52-53bn for FY24 while keeping FY25 guidance of INR 60bn intact.

Proceeds from monetization to strengthen balance sheet and provide growth capital: HG received INR 3.1bn from monetization of 3 HAMs while remainder INR 640mn is to be received by Mar-24. Monetization of 4th HAM is in process for which HG will receive INR 1.4bn by Mar-24. Gross debt reduced QoQ from INR 6bn in Sept-23 to INR 4.7bn in Dec23. For its portfolio of 8 HAM assets, equity requirement stands at INR 12.5bn of which INR 5.3bn is invested till Dec-23. Balance equity of INR 7.3bn is to be invested by FY26E.

Order backlog to strengthen led by expected order wins; Maintain BUY: We like HG for its robust execution track record, strong growth and lean balance sheet. Monetization proceeds from 4 HAM assets will further strengthen the balance sheet (Net debt including mobilization advances/EBITDA of 0.4x in FY26E). Given the delay in receipt of ADs for 2 HAMs, we have cut FY24/25E EPS estimates by 4.9%/3%. We expect 13%/11% revenue/ EPS CAGR over FY23-26. The stock trades at an attractive valuation of 10.9x FY26E EPS. We value HG’s EPC business at 12x FY26 EPS and HAM assets at INR 132/share (1x P/B) to arrive at SOTP-based revised price target of INR 1,190. Maintain BUY.

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