HG Infra Engineering (Buy)
HG Infra Engineering has a strong order book (OB) of ₹6,160 crore (2.9x TTM revenue), providing good revenue visibility for FY21E. While currently 62 per cent of OB is under execution, share of executable orders should improve to 75 per cent by February 2020 with likely receipt of AD for Ateli Mandi-Narnaul project, indicating a relatively low risk to our estimates. We expect 16.5 per cent CAGR in revenue over FY20E-22E with 0 per cent/28 per cent contribution in FY21E/22E from new order inflows. We estimate a marginal 50 bps dip in EBITDA margin to 14.5 per cent in FY21E/22E led by rise in revenue from subcontracted orders to average of 35 per cent from 24 per cent in FY19 and FY20E even as cash generation should remain strong as no equity needs to be invested.
Adjusted valuations at 6.7x/5.8x FY21/22E EPS are inexpensive considering HG’s strong earnings growth outlook, low leverage and high return ratios. We initiate coverage with ‘Buy’ rating and 12-month target price of ₹405, based on 10x FY22E EPS and ₹45/share value of assets.
Key risks: Delay in receipt of Appointed Dates for existing projects, prolonged slump in highway ordering, execution delays in big ticket projects.
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