H.G. Infra Engineering Ltd (HG Infra), an infrastructure-focused company, has experienced a seamless journey in the roads and highways sector, benefited from healthy awarding by NHAI, augmented inflows through expanding pre-qualification, well-established relationships with fellow developers, and increasing presence in multiple states. Furthermore, the company has successfully ventured into the prominent allied-infrastructure sectors, unveiling significant opportunities for further growth. Thus, with the prospect of higher inflows and a comfortable current order backlog, it is poised for healthy growth in the near-to-medium term. Further, the company operates at an elevated margins aided by its adherence to bidding discipline, adoption of cluster-based strategy, and efficient operations. Although a slight moderation in margin is expected ahead due to the change in project mix favouring EPC jobs, it will still rank as one of the best within the industry. Balance sheet is skilfully managed by implementation of an asset-light model and through efficiently controlled working capital cycle. Moreover, its gross debt to remain under check, as funding requirements are to be achieved largely through the receipt of the pending fund from the monetized asset and the resilient cash flow generation. Given the strong outlook, we initiate coverage with BUY rating on the stock.
View: With its strong order backlog, projected inflows, geographical and sectoral diversification, exceptional construction capabilities, elevated margins, an efficient balance sheet, and healthy return ratios, we are confident in the long-term business potential. At CMP, the stock (excl. investments) is trading at a valuation of 13.3x FY26E P/E and 11.0x FY27E P/E. We have adopted the SOTP valuation methodology and arrived at TP of Rs1,827/share. “Initiating with BUY”.
HG Infra Engineering Ltd – Initiating Coverage – SMIFS Institutional Research
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