Maintain BUY on H.G. Infra Engineering - Well poised for growth - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

H.G. Infra Engineering (4QFY20): Well poised for growth. Maintain BUY
(TP Rs 337, CMP Rs 283, MCap Rs 13bn)

HG Infra reported Rev/EBIDTA/APAT miss of 9/4/4% vs our estimates due to Rs 1bn revenue hit on account of COVID-19. HG won Rs 36bn of new orders during FY20 including 2 Delhi Vadodara Expressway EPC packages totaling Rs 21.4bn. Order backlog is robust at Rs 71bn (3.2x FY20 Rev). 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 (1 HAM FC pending). We maintain BUY on HG with SOTP based TP of Rs 337/Sh, valuing the EPC business at 10x FY22E EPS. Key risks (1) Slowdown in NHAI ordering; (2) Delays in receipt of pending dues from Rajasthan Project (3) Elongated monsoon (4) Extension of lockdown.

COVID-19 dampens an otherwise strong 4QFY20: HG infra reported Rs 6.2bn of revenue during 4QFY20. The quarter witnessed a 10-15 day COVID shutdown in March. EBIDTA margins expanded 21bps YoY to 16.3%. APAT reported at Rs 513mn (+39.5/23.5% YoY, 3.9% miss). While April was a complete washout, labor availability & efficiency of execution has gradually ramped up to ~60%. Further clarity to be visible only post Monsoon. Interest moratorium was not availed, even as NWC cycle remains stretched with high FB/NFB limits utilization. Equity infusion of Rs 1.86/0.66bn in FY21/FY22E to be funded from internal accruals, and funding support to SPVs to also be minimal at Rs 0.25bn. Net D/E to remain under ~0.3x in FY21/22E. Asset monetization plans shelved off as clarity on bank rate-MCLR spread emerges.

Majority of the order book to move into execution during 2HFY21: HG has Rs 71bn of outstanding order backlog as of 4QFY20 of which ~Rs 37.7bn (~53%) worth of orders are yet to move into execution, and are in the final stages of land acquisition and site mobilization with execution to commence during 3QFY21. With accelerated execution in high value EPC projects (Delhi-Vadodara and Hapur-Moradabad) coupled with 3 HAM projects under execution, the company is well on track to achieve low single digit rev growth during FY21E vs muted growth for peers. HG seeks order inflows to the tune of Rs 30-40bn in FY21, with incremental focus on EPC projects from NHAI and RVNL.

Rajasthan Project receivable realization key for debt reduction: HG's gross debt stands at Rs 3.7bn (including Rs 0.5bn in promoter loans) vs. Rs 3.2bn QoQ. In the Rajasthan WB-funded project, HG has Rs 2.7bn outstanding receivables as of 4QFY20. With Rs 0.4bn pending works under execution, the company expects outstanding dues to be cleared by the time the projects are expected to be completed in 3QFY21. This shall lead to debt reduction.

Shares of H.G. Infra Engineering Ltd was last trading in BSE at Rs.199.65 as compared to the previous close of Rs. 204.4. The total number of shares traded during the day was 3196 in over 340 trades.

The stock hit an intraday high of Rs. 210.2 and intraday low of 198.9. The net turnover during the day was Rs. 656909.

Source : Equity Bulls

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