Margin remains elevated; Prospects remains bright!
H.G. Infra Engineering Ltd (HG Infra) has presented satisfactory results for Q3FY25. Notably, its revenue has improved at a healthy pace, even though execution in certain projects were affected by the implementation of GRAP in the Delhi-NCR region. Further, EBITDA margin has stayed at an elevated level, largely as a result of a more favourable project mix – especially noting the superior margins related to solar and road (HAM) projects. Ahead, the company has reaffirmed its revenue target of ~17-18% for FY25 and expects this positive momentum to be maintained in FY26 on comfortable order book position. Furthermore, YTD FY25 inflows have been substantial and are projected to surpass Rs100bn for the fiscal year on strong order pipeline. Also, the margin guidance has been retained at ~15-16%, reflecting a likely shift in the revenue mix towards EPC projects in the roads and railways sector. Having said that, its borrowing at Dec’24-end has increased substantially primarily attributed to delays in the disbursement of funds for solar projects. These delays have resulted from extended approval processes faced by certain project SPVs, in-turn, leading to an increased need for funds for project execution. Nevertheless, it is expected to normalize by FY25-end as project execution progresses with receipts of necessary approvals, and payments are received. Further, the monetization of a pending HAM project is progressing as planned, with funds anticipated to be received in Feb’25. In addition, the company has initiated discussions for five HAM projects that are nearing completion. With these, the overall outlook remains favourable, and we maintain our BUY rating.
Q3 FY25 performance characterized by YoY revenue growth and an expansion in margin
Revenue during Q3 FY25 rose by 12.0% YoY and 41.7% QoQ to ~Rs15.1bn, largely attributed to surge in the execution on its healthy order book. However, the implementation of GRAP in the Delhi-NCR area has resulted in a revenue loss of ~Rs1-1.5bn due to shortened execution period.
EBITDA margin has experienced a significant rise, demonstrating 67bps YoY and 19bps QoQ improvement to 16.6%. This enhancement is largely attributed to a favorable project mix, with solar projects contributing ~Rs3.5bn to the revenue (wherein it is commanding ~18% margin). Consequently, EBITDA has improved by 16.7% YoY and 43.4% QoQ to ~Rs2.5bn.
At net level, reported PAT has declined by 33.5% YoY to Rs1.4 bn. However, the company has recognized an exceptional item of ~Rs1.1 bn in Q3 FY24, related to gains from monetized HAM assets. Adj to this exceptional item, PAT has improved by 8.9% YoY. On a QoQ basis, the adj. PAT increased by 54.1%, driven by improved operational performance and muted depreciation cost.
Outlook and Valuation: HG Infra is well-positioned to achieve 16.1% revenue CAGR over FY24-27E, to be propelled by its strong existing order book position and expectations of better inflows. Further, margins are likely to remain elevated with an expectation of 15.5% in FY27. Consequently, EBITDA is projected to improve at 14.7% CAGR. Furthermore, we anticipate 14.6% (adj.) PAT CAGR over FY24-27E with controlled depreciation and finance costs. At CMP, the stock (excl. investments) is trading at 7.5x FY27E P/E. On SOTP methodology, our target price arrives at Rs1,914/share. BUY
HG Infra Engineering Ltd – Q3FY25 Result Update – SMIFS Institutional Research
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