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HG Infra’s (HG) 4QFY24 PAT at INR 1.6bn was in-line with JMFe (consensus: INR 1.57bn) led by higher margins despite lower revenues. HAM monetization is under progress. HG has received INR 3.1bn for 3 HAMs while remainder INR 610mn is to be received by June-24. Monetization of 4th HAM is in process for which HG will receive INR 1.3bn by June-24. Order backlog has strengthened to INR 124bn (2.4x TTM revenue) as on Mar-24 led by inflows of INR 43bn in 4Q. Appointed date for 2 HAM projects remains delayed and now is expected in Sept/Nov-24. While HG missed its FY24 inflow target of INR 80bn, it remains confident of inflows of INR 110bn in FY25 backed by NHAI’s strong bid pipeline and expected inflows from new segments like Railways, Metro and Solar. HG is also planning to diversify into water treatment segment. HG has guided for revenue growth of 15-20% with EBITDA margins of 15-16% in FY25E. We expect 13%/12% revenue/EPS CAGR over FY24-26E. Maintain BUY with a revised price target of INR 1380 (valuing EPC business at 13x FY26E EPS).

* 4Q24 earnings in-line with JMFe: Revenue/EBITDA grew by 11% each YoY to INR 16.3bn/INR 2.65bn (JMFe: INR 16.8bn/INR 2.67bn). EBITDA margins remained flat YoY at 16.2% (JMFe: 15.9%). Interest costs grew by 3% YoY to INR 195mn (JMFe: INR 230mn). Depreciation grew sharply by 46% YoY to INR 380mn (JMFe: INR 372mn). PAT grew by 8% YoY to INR 1.6bn (in-line).

* Order backlog improves QoQ; guides for revenue growth of 15-20% in FY25E: HG received inflows of INR 43bn in FY24 taking order backlog to INR 124bn (2.4x TTM revenues). Order backlog is well diversified with Railways/Solar accounting for 21%/10% share. HG expects highway awarding to pick-up post elections given the strong NHAI bid pipeline and has guided for order inflows of INR 110bn in FY25E. It expects revenues to grow by 15-20% with EBITDA margins of 15-16% in FY25E.

* Forays into Solar vertical with order wins of INR 13bn: HG has won multiple projects for EPC and commissioning of Solar power plants in JV with Stockwell Solar Services from Jodhpur Vidyut Vitran Nigam under the KUSUM scheme. TPC is INR 20bn of which HG’s EPC scope is INR 13bn. HG will infuse equity of INR 5.4bn in Solar projects over FY25-26E. It has already tied up with two vendors for solar panels at attractive prices and is targeting EBITDA margins of 14-15%. For its portfolio of 10 HAM projects, total equity requirement is INR 14.5bn of which INR 6.9bn is invested till Mar-24. Pending equity of INR 7.7bn is to be invested over FY25-27E. While debt is expected to increase to INR 7.5bn given the substantial equity investments in HAM and solar projects, Net debt including mobilization advances/EBITDA would still be comfortable at 0.9x in FY26E.

* Order backlog strengthens; Maintain BUY: We like HG for its robust execution track record, strong growth and lean balance sheet. Monetization proceeds from 4 HAM assets will strengthen the balance sheet. We expect 13%/12% revenue/EPS CAGR over FY24- 26E. HG trades at an attractive valuation of 11x FY26E EPS (adjusted for value of assets). We value HG’s EPC business at 13x FY26 EPS and HAM/Solar assets at INR 248/share (0.7- 1x P/B) to arrive at SOTP-based revised price target of INR 1,380. Maintain BUY.

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