HG Infra Engineering Ltd. share price target

We broadly maintain our estimates for FY21E/ FY22E despite muted H1FY21 as we expect execution to pick up significantly from Q3FY21E in projects worth Rs33.4 bn on receiving the appointed date coupled with stabilization of labour and supply chain issues. We introduce FY23E and expect 4.2%/ 23.6%/ 23.3% revenue growth for FY21E/...

During FY20, tendering and awarding of projects of NHAI has been subdued, due to lower government spending, delays in land acquisition and delays in granting of appointment dates. Furthermore, the ordering activity during the end of FY20 had come to a halt on account of the nationwide lockdown due to the outbreak of COVID-19. The Central Government has implemented several measures to provide relief in view of the prevailing situation, such as enabling 3-6 months' extension of the project period in existing contracts, releasing due payments within the...

At the end of Jun'20, HG Infra's order book stood healthy at ~Rs.68bn(3.5xTTMrevenues).Thecompanyhasnotwonanymajor projects during YTD FY21. However, the management seems...

We expect, labour shortage to impact execution during H1 FY21. However, the timely receipt of appointed date in Rewari project would support execution in H2 FY21. On overall basis, we expect...

Overall fund allocation for key infrastructure sectors has declined 4% YoY in Union Budget FY21 to Rs 5.5tn, with gross budgetary support at Rs 2.7tn (+10% YoY) the latter includes Rs 1.6tn (+7% YoY) towards roads and railways.

HG's NWC is ~58days, standalone debt reduction to Rs 2.7bn by FY20E is on track and HAM equity infusion of Rs 2.6bn will be met from internal accruals. HG targeted bid pipeline is robust at ~Rs 150bn (envisages securing HAM orders of ~Rs10bn and EPC orders of ~Rs10-15bn during 4QFY20). Lending institutions continue to draw comfort from the company's execution track record and financial position as it has achieved timely Financial Closure for its 3 HAM projects. Thus, HG is well placed to achieve FC for its incremental HAM projects. We maintain BUY. Key risks (1) Further delay in NHAI ordering activity; (2) Delays in receipt of pending dues from Rajasthan Project. HG Infra reported Rev/EBIDTA/APAT beat of 2.3/0.9/(3.8)% vs our estimates. The company continues to maintain EBITDA margin around the 15% mark. We maintain BUY on HG with SOTP based TP of Rs 441/Sh, valuing the EPC business at 12x FY21E EPS.

Gurgaon-Sohna site visit indicates steady execution progress

We visited HG Infra's (HGIEL) Gurgaon-Sohna NHAI HAM project site and also met CMD Harendra Singh.

HG delivered an inline performance during 2QFY20. About Rs 32bn of orders are expected to move into execution during 3QFY20, leading to a strong pickup in revenue from 4QFY20. The EPC bid pipeline is robust (HG hopes to secure EPC orders of ~Rs20bn and HAM orders of ~Rs10bn during 2HFY20). HG has received FC for its 2 HAM projects from 2 leading banks, highlighting the company's ability to secure funding in a market which values Infra companies with strong execution capabilities as well as strong financial health. We maintain BUY. Key risks (1) Further delay in NHAI ordering activity; (2) Delay in appointed dates for the company's HAM and EPC projects. HG Infra reported Rev/EBIDTA/APAT beat of 1/3/8.5% vs our estimates. Higher EBIDTA margins (+35bps vs estimate), stable interest cost/depreciation resulted in APAT beat. We maintain BUY on HG with SOTP of Rs 441/Sh, valuing the EPC business at 12x FY21E EPS.

The corporate tax reduction announced last week will bump up standalone EPS by 2-13% for our infrastructure universe over FY20-FY22, with HGIEL benefiting the most.