Maintain BUY on HG Infra - Execution beat drives outperformance - HDFC Securities

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

HG Infra reported revenue at Rs 4.7bn, 15.4% ahead of our estimate. Execution efficiency has improved to pre-COVID levels now. While HG did not secure any orders during 1HFY21, it aims to win Rs 30-40bn during FY21. Order backlog is robust at Rs 64.4bn (3.2x FY20 Rev). Standalone net debt reduced to Rs 1.7bn from Rs 2.7bn on Sep-20 as working capital debt normalised to Rs 0.8bn. We maintain BUY on HG with SOTP based TP of Rs 380/Sh, valuing the EPC business at 10x Sep-22E EPS. Key risks: (1) Slowdown in NHAI ordering and, (2) delays in receipt of pending dues from the Rajasthan project.

Execution beats estimate; surprises on margin as well: Revenue for 2QFY21 stood at Rs 4.7bn (15.4% beat). EBITDA: Rs 769mn (20.7% beat). EBITDA margin came in at 16.5% (+100/-3.1 bps YoY/QoQ). RPAT stood at Rs 327mn (40% beat). Adani and Hapur projects' progress were slow due to COVID and monsoon, but are now on track, and are expected to be completed 30/50% respectively by FY21. Almost all sites are operating at pre-COVID level of operations and HG is well poised to register low single digit revenue growth in FY21. Appointed Date for Adani and Delhi-Vadodara Pkg-8 were received in 2QFY21, while PCODs were received for 4/7 projects, and 2 more in line. Sanction for Rewari Ateli Pkg-4 from Canara Bank has been received (at 8.75% interest rate), and FC from NHAI is in progress.

No order wins in 1HFY21; targeting Rs 30-40bn of orders in FY21: Despite pickup in overall ordering, HG could not win new orders during the quarter. Whilst HG has put in bids for 15-16 projects, it highlighted high competitive intensity and focus on margins protection as key reason for not winning new projects. HG is maintaining its order inflow guidance of Rs 30- 40bn worth of orders in FY21. 2QFY21 order book stands at Rs 64.4bn (3.2x FY20 revenue). HG is now diversifying into railways civil works, and will be participating in 5 IRCON/RVNL bids worth Rs ~40bn. It will place bids for 4 EPC & 3 HAM projects worth Rs ~80bn. Incrementally it will also be looking at water supply projects in partnerships.

Debt position comfortable; Rajasthan receivable realization key monitorable: HG's standalone net debt stood at Rs 1.7bn (including Rs 0.3bn in promoter loans) vs. Rs 2.7bn QoQ, even as gross debt reduced to Rs 3bn vs Rs 3.8bn QoQ due to normalization of working capital debt to Rs 0.8bn, which had nearly doubled in 1QFY21 on increase in unbilled revenue. In the Rajasthan WB-funded project, HG has Rs 2.7bn outstanding receivables as of 2QFY21. While debtors' level is same QoQ, large unbilled revenues earlier is now nil. Management plans to infuse Rs 1.8bn equity in HAM projects in current fiscal, of which Rs 1.05bn has already been infused. 1HFY21/FY22/FY23 equity commitments stand at Rs 0.75/0.7/0.3bn.

Shares of H.G. Infra Engineering Ltd was last trading in BSE at Rs.189.5 as compared to the previous close of Rs. 186.6. The total number of shares traded during the day was 4783 in over 204 trades.

The stock hit an intraday high of Rs. 191.05 and intraday low of 188.4. The net turnover during the day was Rs. 907998.

Source : Equity Bulls

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