Buy HG Infra Engineering Ltd For Target Rs. 1,900 By Emkay Global Financial Services Ltd
HGIEL posted 14%/1% YoY revenue/EBITDA growth in Q1FY26 to Rs17.1/2.5bn, respectively, while RPAT stood at Rs1.3bn. Order book at quarter-end was Rs147bn. The management gave guidance of ~15-17% YoY sales growth in FY26, with 15-16% EBITDAM. It has also guided to FY26 order inflow of Rs110bn, with ~75% expected from roads and railways, and the remaining from other sectors. HGIEL plans monetizing 5 HAM projects nearing completion in FY26. We keep our TP unchanged at Rs1,900; retain BUY, given the incremental wins, steady execution progress, and the potential HAM monetization being key near-term triggers.
Result Highlights
HGIEL reported SA Q1FY26 revenue/EBITDA of ~Rs17.1/2.5bn, up 14%/1% YoY and at a 3% beat/4% miss, respectively, to consensus estimates. APAT came in at ~Rs1.3bn, down 12% YoY primarily due to increased finance costs that were up ~71% YoY at Rs376mn. Gross margin expanded by ~50bps sequentially to 21.1% in Q1, largely owing to 11% sequential reduction in cost of material and the 18% decrease in contract and site expenses; EBITDAM declined marginally by ~20bps QoQ to 14.4%. D/A was down 5% YoY to Rs329mn, whereas other income fell 28%/64% YoY/QoQ to Rs23mn. The company’s order book of Rs147bn as of Q1FY26-end was split between the roads/railways/solar/BESS segments at Rs96/29/16/5bn, respectively. SA debt was Rs10.5bn, while cash balance stood at ~Rs1.6bn as of Q1FY26-end.
Management KTAs
HGIEL maintained order inflow guidance of ~Rs110bn and 15-16% EBITDAM, for FY26. The company aims to generate ~30-40% of its orders from the non-road sector over the next 2-3Y. It is looking to monetize 5 HAM projects, namely Raipur Vishakhapatnam OD5/OD6/AP1 and Khammam Devarapalle 1&2 with total transaction value of ~Rs36bn (equity of ~Rs7.7bn) and average P/B of ~1.8x. The binding agreement for these has been signed and the transaction is expected to materialize in FY26. The equity requirement for 11 HAM projects (Exhibit 3) is ~Rs16.6bn, with ~Rs2.9bn expected to be infused over the remainder FY26 and ~Rs3.7bn over FY27/28. The company has increased its BESS capacity to ~735MW (ie ~1,470MWh), spread across three projects from NVVN and GUVNL, which are expected to be commissioned by the end of CY26. The management expects annual revenue of ~Rs2.2bn from BESS with total equity infusion of ~Rs5bn, of which ~Rs1.2bn is expected in FY26, with the balance to be infused in FY27/28.
Valuation and Outlook
We value HGIEL using SOTP-based methodology. Its SA EPC business stands at Rs1,595/sh (15x Mar-27E EPS), HAM projects at Rs264/sh, and the solar business at Rs41/sh (0.5x Mar-26E equity infusion). HGIEL’s foray into railways, solar, and BESS offers a steady mid-to-long term earnings visibility, with solar likely to present monetization opportunities like HAM, while BESS likely to complement the solar business.
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