H.G. Infra Engineering Ltd : Paving the Path to Success

My notes of 1st August 2023 concall

1. Revenue Guidance:

• Revenue for the year is maintained between INR 5,500 crores and INR 5,600 crores.
• Margins are expected to be around 16%.
• Order inflow guidance is revised to INR 7,000 crores to INR 8,000 crores due to project award delays
• Approximately INR 2,000 crores are expected from sectors other than highways, such as railways and metros.and a reduced order guidance.
• The goal of achieving INR 10,000 crores revenue over the next 3 years.

2. Revenue Breakdown:

• Ganga Expressway project contributed around INR 475 crores in Q1 FY ’24.
• Existing HAM projects contributed approximately INR 500 crores in the same period.
• Clear focus on contributions from the Ganga Expressway project, SPVs, and NHAI EPC projects.

3. Revenue Composition for Future:

• Projected contributions from HAM projects and non-road sector projects remain largely the same.

4. Monetized Asset Approvals and Inflow:

• Approvals for the monetized assets with KKR are in progress.
• Two projects with CODs are already with the finance department for in-principle approval, with the third project expected to follow soon.
• The finance department typically takes around 7 to 10 days for in-principle approval.
• Despite a recent delay due to NHAI organizational changes, the inflow is expected by October or November.

5. Project Pipeline and Awards:

• The company aims to achieve around INR 4,000 crores to INR 5,000 crores of project awards from NHAI.
• Awards from MSRDC and other sectors will contribute to the remaining projects.
• Specific mention of participation in the Pune Ring Road tender and expectations of award by October or November.

6. Railway Opportunities and Capabilities:

• The company is actively participating in railway projects, including permanent track linking works.
• Opportunities are seen in Maharashtra, Gujarat, and Uttar Pradesh.
• Collaborative ventures and MOUs are being explored for railway projects.
• Railway station redevelopment projects are also considered for bidding and participation.

7. Equity Requirements and Bid Pipeline Overview:

• Equity requirement for next 3 years: FY ’24 – INR 407.4 crores, FY ’25 – INR 268 crores, FY ’26 – INR 158 crores.
• Bid pipeline: Strong pipeline for MSRDC projects (INR 30,000+ crores qualified), NHAI projects (INR 45,000+ crores active), railways, and metro.

8. Working Capital:

• Working capital increased temporarily due to delayed payments from SPVs and clients, but expected to return to usual levels.

9. Asset Monetization and Debt Reduction:

• Expected reduction in debt by INR 200-odd crores by year-end.
• New capex may add INR 60-70 crores to debt during the year.
• Projected debt range: INR 425 crores to INR 450 crores by year-end (excluding asset monetization).

10. Order Inflow Guidance and Bid Pipeline

• The company aims for INR 7,000-8,000 crores order inflow this fiscal year.
• Limited order inflow received in H1 with challenging Q4 ahead.
• Around INR 5,500 crores outstanding bids expected to open soon.
• Estimated INR 1,000-2,000 crores potential from ongoing bids.
• Bid pipeline includes INR 1,50,000 crores projects.
• Targeting to bid for INR 90,000 crores projects.
• Historical bid strike ratio of 7-8% gives confidence in achieving target.
• Bids to be completed in Q2-Q4 for substantial future opportunities.

11. Operational Efficiency and Equipment Utilization:

• The company has strategically invested in construction equipment, contributing to operational efficiency and margin improvement.
• The new equipment has led to reduced dependence on external vendors, translating into better control over operational costs.
• The equipment utilization rate has been decent, and the benefits of internal strategic investments are being realized.

12. Margin Expectations and Revenue Breakup

• The company has guided for 20% to 25% revenue contribution from the non-road sector in the annual report.
• There is a cautious approach in bidding for projects outside the highway sector, with a gradual expansion plan over three years.
• The aim is to be selective and avoid desperate bidding, which is intended to help maintain similar margins.
• There is confidence that maintaining margins will not be a significant challenge even as the non-road order book increases.

13. Competition Intensity and Project Mix

• The competitive landscape in the industry has seen a correction in recent months, with a decrease in the number of bidders for projects.
• The number of bidders in EPC projects is still high, ranging from 35 to 40, while in HAM projects, it’s around 7 to 8.
• There is a cautious approach to bidding, with an emphasis on avoiding margin shrinkage and compromising on profitability.
• Despite the competitive environment, there is confidence that the company can target the goal of adding around INR 5,000 crores worth of highway projects without compromising on margins.
• The target for road inflow is expected to be a mix of around INR 2,000 crores from EPC projects and the remaining from HAM projects.

Project statuses: