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Robust execution; OB diversification on track

HG infra reported good set of numbers for 3QFY24 driven by better than expected execution. Company has closed the first tranche (3 projects) of its asset monetization for a consideration of Rs3.7bn and gain of Rs1.6bn (Valuation multiple of 1.55x P/B). Monetization is expected to be completed by March 2024 thereby unlocking the much needed growth capital in the near term. NHAI tendering is expected to be muted as code of conduct would kick-in by the end of FY24. However, company’s focus to diversify into non-road projects (target of 25%-30% of OB from non-road projects by FY25/FY26) would help to achieve its order inflow target. HG’s robust executable OB coupled with its asset monetization, provides greater comfort for future growth. We value HG Infra based on SOTP method wherein we have valued EPC business at 12x Sep25 PAT and asset business as 0.8x P/B to arrive at our target price of Rs1,218 (unchanged).

3QFY24 result highlights

HG Infra reported good set of numbers driven by better than expected execution in 3Q. Revenue at Rs13.5bn is up 19% YoY and 8% ahead of our estimate. EBITDA at Rs2.1bn is up 13% YoY and 7.6% ahead. EBITDA margins at 15.9% are stable on QoQ basis and inline with our estimate. The company had earlier signed SPA to sell its entire shareholding in 4 HAM assets to Highway Infrastructure Trust. During the quarter the company has sold its shareholding in 3 out of 4 assets wherein it has received COD. It has booked gain of Rs1bn in this quarter which is part of extraordinary item.

Orderbook details

Company’s orderbook stood at Rs96.2bn with HAM and EPC projects comprising of 37% and 63%, respectively. Order inflow guidance for FY24/FY25- 60bn/80-100bn. Company has bid for projects worth Rs60bn in the railway sector and planning to bid Rs600bn for NHAI projects in the next 12-15 months. Company expects Non-roads projects to comprise of 25-30% in FY25/FY26 from 12% now.

First tranche of Asset Monetization completed

Company has closed the first tranche (3 projects) of the transaction for a consideration of Rs3.7bn with a gain of Rs1.6bn. 2nd tranche is expected to be completed by March 24 for a consideration of Rs1.4bn. The sale proceeds from the first tranche are recorded as debtors from SPV. Out of the total equity requirement of Rs13.3bn, company has infused Rs6bn till Dec 2023 in HAM projects. Equity to be invested in FY25 stands at Rs4.6bn.

SOTP based TP of Rs1,218, maintain BUY

We believe that HG infra has the required tenets of a successful EPC player in the country backed by strong execution track record, robust earnings growth and lean balance sheet. We are building in 18%/17% revenue/PAT growth for the company over FY23-25E with 16% EBITDA margins. We have valued the stock based on SOTP method wherein we value EPC business at 12x Sep25 PAT and asset business at 0.8x P/B to arrive at our TP of Rs1,218 (unchanged).

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