Q4FY23 Review: HG Infra Engg: Well-placed to deliver healthy growth

12 May 2023 , 12:25 PM

HG Infra sustained strong execution in Q4/FY23 and is wellplaced to deliver 20%+ revenue growth over FY24-25 backed by a large Rs126bn order book. Earnings growth would be faster supported by deleveraging from recent monetisation of 4 HAM projects at 1.55x PB multiple.

Healthy order book to drive strong 20%+ growth: 

HG Infra ended FY23 with an order book of Rs126bn – 2.85x trailing 12mn revenue. Excluding the recent wins of Rs39bn, ~Rs89bn worth of projects are currently under execution. Backed by an expanded equipment base (Rs3bn capex in FY23), HG Infra is well-placed to deliver 20%+ revenue growth for FY24. Management has guided to 23% growth including Rs5bn revenue from recent wins. Existing order book can easily support further 20% growth in FY25 as well. In terms of order inflows, management expects wins worth Rs80-90bn from Highways, Railways and Water (JJM) projects in FY25.

4 HAM projects monetised at 1.55x PB: 

HG Infra recently signed a SPA with Highway Infrastructure Trust (KKR owned entity) to sell 100% equity interest in 4 HAM projects for an EV of Rs13.94bn. This translates into equity inflow of Rs5.31bn to HG Infra vs committed equity of Rs3.43bn – an attractive 1.55x PB multiple. With closure expected by end FY24, this will more than cover the committed Rs4.4bn equity investment in balance HAM projects for FY24 (total balance equity commitment of Rs7.4bn over FY24-25). Hence, the company should see debt reduction at standalone entity.

BUY for 22% EPS Cagr over FY23-25: 

Analysts of IIFL Capital Services currently estimate 22% EPS Cagr backed by 19% revenue Cagr, stable Ebitda margin and lower finance charges. In terms of exposure to Adani’s Ganga expressway, execution and payments are on time with strong emphasis on timely completion by UP govt. Analysts of IIFL Capital Services see upside risks backed by strong execution track-record and rationale bidding. Monetisation of balance 8 HAM projects at valuations similar to recent deal also presents upsides.