HG Infra Engg: Orders wins to boost growth in medium term

28 Mar 2024 , 01:21 PM

HG Infra has won orders worth Rs41.2bn till date in FY24, even as the awarding by NHAI has been sluggish. Of these, Rs26.5bn have come from new sectors — Rs7.8bn for Solar project (in JV); Rs18.7bn for Railway projects. With relatively short execution timelines, these boost revenue growth visibility for the company. HG Infra has sustained steady margins, but given the aggressive bids in NHAI projects and increasing contribution from new sectors, analysts of IIFL Capital Services expect incremental margin pressure over the medium term. They maintain estimates for the time being, though. Reiterate BUY.

Order wins amid fragile scenario to support revenues: Despite the sluggish awarding by NHAI, HG Infra has won new orders worth Rs41.2bn till date in FY24 (all in Q4); implying healthy additions to order book vs its guidance of Rs50bn inflows. These wins boost the growth visibility, given the shorter execution timelines; analysts of IIFL Capital Services build in revenue Cagr of 16-17% over FY23-26. While ordering will take a pause during elections, healthy project pipeline in roads means that ordering beyond Q2 should be stronger from NHAI.

Diversification a key positive, but margins could come under pressure: HG Infra has achieved healthy diversification with solar project awards for Rs15.6bn in JV with Stockwell Solar, and railway project wins of Rs18.7bn. This will boost the share of non-road projects in the order book and help build pre-qualifications for further non-road project wins. However, analysts of IIFL Capital Services see margins coming under pressure as share of revenue from new sectors increases and also due to aggressive bidding for road projects, as evident from the bid cost vs NHAI project cost. Analysts of IIFL Capital Services await management commentary on the same.

Healthy balance sheet to provide further space for growth: SA net debt stood at Rs3.27bn at Dec’23, which should further drive down as the equity infusion of HAM would be limited to Rs4.65bn in FY25 and Rs1.91bn in FY26. This does not consider equity for the newly won HAM and receipt of 2nd tranche of proceeds from monetisation of HAM projects.