This Small Cap Infra Co. Reported Rs 10.7bn Revenue, Buy Call For 67% Gains: HDFC Securities

HDFC Securities, a leading brokerage firm, in its recent report on HG Infra Engineering Ltd, published on 4th August, has given a buy call to the stock of the company for a target price of Rs 980 apiece. Considering the estimated target price by the brokerage, the stocks could witness a surge of around 67% if the stocks are purchased at the current market price. HG infra is a small cap infrastructure sector company.

Stock Outlook & Returns

The stock's current market price is Rs 593.75 apiece, 0.82% up from the previous close of Rs 588.95 apiece. Currently, it is trading Rs 111.75 above its 52-week low and Rs 236.25 below its 52-week high, respectively. The 52 week low was recorded in January 2022 at Rs 482 apiece and the 52 week high was in October 2021 at Rs 830 apiece.

The share in the past 1 week gained 2.52% and 13.05% in the past 1 month, respectively. Whereas in the past 1 year the share has fallen roughly 0.36%. However, in the past 3 years, the stocks surged and delivered multibagger returns of 156.79%.

The stock's PE ratio is 10.02 and the P/B ratio is 2.71, respectively. TTM EPS is Rs 59.61. Its ROE is 26.46%. Its dividend yield is 0.17% and the face value is Rs 10. It has a market capitalisation of Rs 3,889 crore.

Financial highlights

HG reported revenue of INR 10.7bn (16.6%/+3.9% YoY/QoQ, a beat of 6.7%). EBITDA came in at INR 1.6bn (+8%/+3.6% YoY/QoQ, a beat of 6%), resulting in an EBITDA margin of 15.2% (-122bps/- 4bps YoY/QoQ, vs. our estimate of 15.4%). RPAT/APAT was INR 976mn (+9.8%/+7.2% YoY/QoQ, a beat of 11.6%).

Well diversified OB; robust bid pipeline

During the quarter, HG was awarded an EPC order worth INR 49.7bn (including GST) vs. INR 90-100bn order inflow guidance for FY23. With this, the OB as of Jun'22 was at an all-time high of INR 115bn (~3.2x FY22 revenue) vs. INR 79.7bn at the end of Mar'22. The OB was well diversified at the client level with government/private orders contributing 58/42% of the OB. 64% of the OB consisted of EPC orders, whereas HAM orders formed 36% of it. Geography-wise, 40% orders were from Uttar Pradesh, followed by Odisha/Telangana/Delhi/Karnataka at 18/13/9/7%. The appointed date (AD) for three EPC projects is expected in Q2FY23. HG has a strong bid pipeline of ~INR 70bn for 1/1/1/3 bids for metro/railway/water/NHAI orders.

Balance sheet ratios to normalise by the year-end

The standalone gross/net debt increased to INR 4.5/4.4bn as of Jun'22 vs. INR 3.1/1.6bn as of Mar'22. HG has guided to bring the gross debt level to INR 3.5bn by Mar'23. It has guided for Mar'23 mobilisation advance of INR 5bn, backed by robust order inflows. HG has also guided for debtor days to reduce substantially by H1FY23. In nine HAM projects, equity invested as of Jun'22 stands at INR 5.3bn, of the total INR 11.4bn required by mid-FY25 and the pending equity requirement is INR 6.1bn (INR 2.9bn in balance nine months FY23, INR 2.1/1.1bn in FY24/25).

HDFC Securities Recommends Buy For A Target Price of Rs 980 apiece

HDFC Securities said, "Robust execution HG Infra's (HG) revenue/EBITDA/APAT came in at INR 10.7/1.6/1bn, a beat of 3.9/3.6/7.2%. HG has reiterated its revenue guidance of INR 50/60bn for FY23/24 on the back of a robust OB. HG has also restated its EBITDA margin for FY23/24 to be at 15.5-16%. With order inflow (OI) of INR 49.7bn (including GST) vs. INR 90-100bn order inflow guidance for FY23, the order book (OB) stood at INR 115bn (the highest-ever) at Jun'22 end. The OB is well diversified geographically. The standalone gross/net debt increased to INR 4.5/4.4bn, as of Jun'22, vs. INR 3.1/1.6bn, as of Mar'22. HG has guided to bring the gross debt level to INR 3.5bn by Mar'23. It plans to monetise the three completed HAM projects and one HAM project is expected to be completed in H1FY23, by Mar23. Given robust order inflows and strong execution, we maintain BUY, with an increased SOTP-based Target Price of INR 980 (14x Mar-24E EPS, HAM 0.8x P/BV) to factor in higher level of execution and better EBITDA margin."

Disclaimer

The stock has been picked from the brokerage report of HDFC 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.