HG Infra Engineering Ltd. share price target

We maintain BUY with a TP of 386 (ascribing 15x to Core EPC FY20 earnings). We interacted with HG Infra management, Mr. Harendra Singh, MD, Mr. Rajadutta, COO and other senior members of team. Discussion centered on outlook, strategy and vision amidst the sectoral concerns regarding project funding, land acquisition, pace of future tendering and political uncertainty. We also visited 2 key ongoing projects (continuous stretches): Chittorgarh-Udaipur (with Tata Projects, Rs 4.8bn) and Gulabpura-Chittorgarh (with IRB, Rs 7.1bn).

With a further pickup in NHAI orders in 2HFY19E, EPC players will only add to their FY18E book/bill of ~ 3.3x. This should address longevity concerns on their earnings up-cycle. For HG, EPS should rise to Rs 24.7/sh in FY20E. HG has a firm grip over working capital (and hence, debt) and should deliver high RoEs >20%. We initiate coverage with a TP of Rs 386/sh (valuing core EPC operations at 15x FY20E EPS) with a BUY rating. HG Infra Engineering (HG) is an EPC company with focus on highways, roads and bridges in addition to civil works and water supply projects. It has been a sub-contractor for established players like L&T;, Tata Projects and IRB Infra. Strong and persistent execution has helped it transform from a sub-contractor to a frontline EPC bidder. HG has grown to pre-qualify for projects up to Rs 11.2/16.0bn in EPC/HAM respectively. The transformation is visible, with HG quadrupling its revenues over FY13-18.

Strong Performance on Improved Execution: Maintain BUY H.G. Infra Engineering (HGIE) has posted a strong set of numbers for 4QFY18 with its revenue surging by 34% YoY and 57% QoQ to Rs5bn mainly owing to strong order book and improved execution. Led by improved execution and new accounting standard, EBITDA grew by a substantial 79% YoY (+59% QoQ) to Rs787mn. EBITDA margin expanded by 398bps YoY to 15.6% vs. 11.6% and 15.4% in 4QFY17 and 3QFY18, respectively. While its PAT grew by 48% YoY (+90% QoQ) to Rs360mn in 4QFY18, HGIE posted Rs843mn PAT in FY18 (vs. our estimate of Rs782mn). Its current order book at Rs46bn (3.3x of FY18 revenue) provides healthy revenue...

The Offer comprises a Fresh Issue of 300 Cr and an Offer for Sale of up to 6,000,000 Equity Shares. Incorporated in 2003, H.G. Infra Engineering Ltd (HGIEL) is an infrastructure construction, development and management company with extensive experience in its focus area of road projects, including highways, bridges and flyovers. The Company's main business operations include providing EPC services on a fixed-sum turnkey basis and undertaking civil construction and related infrastructure projects. HGIEL is also engaged in executing...

IPO Note - H.G. Infra Engineering Limited Issue Open: Feb 26 - Feb 28, 2017, Price Band: Rs 263 - 270, Issue Size: 17,111,111 Equity Shares * ( Including Fresh issue of *11,111,111 eq,sh + Offer for sale of 6,000,000 eq sh )

HG Infra Engineering (HGIEL) is an infrastructure construction company focused on road projects. Its core business operations include providing EPC services on fixed-sum turnkey basis. HGIEL has executed projects in six states across Rajasthan, UP, Maharashtra, etc. It reported robust revenue, PAT CAGR of 31.6%, 38.3% in FY13-17 to | 970 crore, | 49.3 crore, respectively. IPO consists of fresh issue of 1.1 crore equity shares worth ~| 300 crore (at higher end of price band of | 270) & offer for sale...

Started in 2003, HG Infra Engineering (HGIEL), based in Jodhpur, has evolved as a major player in the road construction sector and has a major foothold in Rajasthan, Uttar Pradesh and Maharashtra. HGIEL is pre-qualified to bid independently on an annual basis for bids by NHAI and MoRTH. During the last five years, it has completed 13 proj..

H.G. Infra Engineering Ltd. (HGIEL) is an infrastructure construction, development and management company with extensive experience in road projects, including highways, bridges and flyovers. The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS. Of the net proceeds, around Rs. 1,156mn would be utilized to prepay and/or repayment of the debts availed by the company. Another, Rs. 900mn would be utilized for the...