Stock To Buy: Axis Securities Is Bullish On This Infra Stock, Suggests Buy For 44% Potential Upside

The brokerage firm, Axis Securities is bullish on HG Infra Engineering Limited (H G Infra) and recommends 'buy for a target price of Rs 845 apiece. The brokerage sees potential gains of 44% considering the estimated target price by the brokerage and the Current Market Price of the stock. HG Infra reported revenue of Rs 3,615 Cr in FY21 (on a standalone basis), registering a robust growth of 43% over FY21. The growth was driven by a robust order book and superior execution by the company despite challenges imposed by COVID 2.0 lockdowns.

Stock Outlook & Performance

The stock of H G Infra yesterday closed at Rs 572.65 apiece, today it opened at Rs 580 apiece, the Current Market Price (CMP) of the stock is Rs 586.95 apiece. Gained 2.50%., at the time of writing. The stock's 52 week low was recorded on 20 July 2021 at Rs 463.60 apiece and its 52-week high on 27 October 2021 at Rs 830 apiece, respectively.

The stock of the company over the last week has gained nearly 13.83% and 11.18% in the last 1 month, respectively. In the last 1 year, its share price gained 24.5% and in the last 3 years, it has given multibagger returns of 137.29%, respectively.

Stock Details
CMP	Rs 586.95
Target Price	Rs 845
Potential Upside	44.00%
Market Cap	3747.66
1-Year Return	24.50%
3-Years Return	137.29%

Business Updates

HG Infra reported revenue of Rs 3,615 Cr in FY21 (on a standalone basis), registering a robust growth of 43% over FY21. The growth was driven by a robust order book and superior execution by the company despite challenges imposed by COVID 2.0 lockdowns. As of 31st March 2022, the company's order book stands healthy at Rs 7,972 Cr, comprising EPC & HAM road projects. EPC & HAM Road projects constituted 45% & 55% of the total order book respectively. Client-wise, the public order book formed 92% and the rest 8% from the private side. During the year, the company completed three HAM and EPC projects each for which PCD (Provisional Completion Certificate) has been received. All these projects have been completed as per schedule. In the case of two HAM projects, the company is eligible for an early completion bonus.

Key Highlights

Robust growth in EBITDA and APAT: The company reported EBITDA of Rs 584 Cr, up 42% YoY and APAT of Rs 339 Cr, up 61% YoY. The growth was driven by the execution prowess of the company. EBITDA/APAT margins stood at 16.2% and 9.2%.

Secured orders worth Rs 4,328 Cr: The company secured orders worth Rs 4,328 Cr during the year comprising Road projects (EPC & HAM). EPC and HAM constituted 40% and 60% of the new projects awarded in FY22.

35 projects spread across 9 States: As of 31st March 2022, the company has 35 projects comprising 9 HAM and other EPC projects spread across 9 States with Odisha and Telangana forming 28% and 20% of the total order book.

 

Key Competitive Strengths

a) Extensive experience in executing road projects

b) Strong project management led by an experienced professional team

c) Modernising and strengthening construction capabilities

d) Robust financial position

e) Timely project deliveries driven by superior execution

Other Key Aspects

Strategies Implemented

a) Core focus on road EPC and HAM projects
b) Diversification into other infra sectors
c) Maintaining financial discipline.

Growth Drivers

a) Rising population
b) National Infrastructure Pipeline allocating 19% of the total Capex to the road sector
c) Urbanization, and d) Rapid Industrialisation.

Key Focus Areas moving forward

a) Focus on execution of EPC and HAM projects
b) Focus on maintaining a lean Balance Sheet
c) Continue to focus on its core strength of developing various infra-related projects
d) Modernising construction capabilities

Outlook & Recommendation

The company has a robust order book while it continues to diversify into other related segments by leveraging its proven execution capabilities. This will provide the company with revenue visibility for the next two to three years. The company is well aligned to achieve growth by capitalizing on favourable industry tailwinds which are being created by the government's thrust on developing infrastructure, especially on the highways, expressways, and other road projects.

The brokerage said, "We expect HG Infra Engineering Limited to report Revenues/EBIDTA/APAT growth of 28%/26%/33% CAGR respectively over FY21-24E. We value HG Infra Engineering Limited EPC business at 9x FY24 EPS and HAM portfolio at 1x book value with a target price of Rs 845/share, implying an upside potential of 56% from the CMP. We maintain our BUY rating on the stock."

Company Overview - HG Infra Engineering Limited

HG Infra Engineering Limited embarked on its journey in 2003 and has emerged as one of the established names in the Indian road infrastructure sector over the year. The company has a strong presence spread across Haryana, Delhi, Rajasthan, Uttar Pradesh, Telangana, Odisha, Andhra Pradesh, Karnataka and Maharashtra. Predominantly engaged in road construction activities, HG Infra is a major Engineering Procurement Construction (EPC) player with an increasing focus on Hybrid Annuity Model (HAM) projects. Catering to a wide range of clients, including government and private, it has created a brand name which reckons faith. The company's robust business model is pivoted on a complete integration coupled with a large fleet of in-house equipment and skilled manpower. Leveraging this business model, it has established a proven track record of successfully executing large-sized civil construction projects such as extension and grading of runways, railways and land development, and water pipeline projects.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.