H.G. Infra Engineering Ltd: highways, roads and bridges.

Dear investor,

Please find below mentioned medium term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
HG Infra Ltd	200	240	541019	HGINFRA

Fundamental

• Market Cap:  1,305 Cr.
• Current Price:  200.30
• 52 weeks High / Low  294.95 / 126.35
• Book Value:  126.78
• Stock P/E: 7.83
• Dividend Yield: 0.25 %
• ROCE: 24.44 %
• ROE: 21.16 %
• Sales Growth (3Yrs): %
• Listed on BSE and NSE
• Company Website
• Face Value:  10.00

• PEG Ratio:
• Promoter holding: 73.99 %
• Pledged percentage: 0.00 %
• Debt:  407.87 Cr.
• Price to Earning: 7.83
• EPS:  25.57
• Net profit:  166.61 Cr.
• Profit growth: 30.83 %
• Profit growth 7Years: %
• Net profit preceding 12months: 150.87 Cr.
• Profit growth 3Years: %
• Dividend yield: 0.25 %
• Debt to equity: 0.49
• Sales last year:  2,014 Cr.
• Sales growth: 10.06 %
• Unpledged promoter holding: 73.99 %

HG Infra Engineering Ltd (HGIEL) is a leading infrastructure company doing EPC, HAM, and sub-contracting activities across highways, roads, and bridges. The company has a presence in seven states. With a prestigious mix of government and private sector clientele, including NHAI, MoRTH, Tata Projects, IRB and Adani Group. It is pre-qualified to bid independently for large EPC projects and HAM Projects and registered as a grade AA Class contractor with PWD, Rajasthan and an SS Category with Military Engineering Services (MES).

 

Investment rationale
 

Asset light model helping to generate >25% RoE: The company broadly executes EPC (Engineering Procurement and Construction) and HAM (Hybrid Annuity Model) of construction works which require minimum capital commitments, unlike BOT or BOOT which are leveraged activities and thus requires upfront capital commitments. HG also does sub-contracting works and hence investments are diverted towards building capabilities by acquiring the latest machinery and equipment. HG derives 25% revenue from sub-contracting while 76% of the total order is under the EPC category. Its asset turnover is >2x and is continuously investing in building capabilities. The asset-light model helps it generate >25% RoE.

Strong revenue visibility, robust order book: The Company with experience of over 40% have build capability to bid large EPC contracts. The average ticket size of such orders is >Rs180 crore with pre-qualification of Rs1750 cr and above. The current order book of Rs7,103 crore is >3.5x of its FY20 consolidated sales and thus offer revenue visibility of >3 years. Of this order, 76% is in EPC and 24% is in HAM. These orders are from a diversified client base (NHAI >50% of orders) with 54% are in the state of Rajasthan.

Experienced management backed by a dedicated team and in house execution capabilities: HG has >40 years of experience backed by 2100+ dedicated employees. The company has invested >Rs600 crore in plant and equipment. It has built a strong team for execution and management – 80%+ of employees are skilled and highly skilled workers. Further, it is looking to de-risk business by expanding in sectors like Railways: projects involving civil part of the track laying, Water Infra: water supply projects involving laying water pipeline for last-mile connectivity (have already done similar projects in Rajasthan) and Airport: construction of runways, taxiways.

De-leveraged balance sheet, attractive valuation: The Company has a debt/equity <0.5x with a cash and bank balance of Rs115 crore as at Mar-20. Financial performance in recent quarters has been robust. The stock has corrected >35% from its 52W high and current valuation looks attractive for long term investors. It enjoys an EBITDA margin of >15% while RoE and RoCE are >25%. We believe a PE of less than 10x offers an investment opportunity for medium to long term investors.

 

Duration of recommendation: Medium to long term.

Note

Before investment advice your financial advisor.