Reliance Securities

HG Infra (Buy)

Target: ₹392

CMP: ₹222.50

HG Infra Engineering (HGINFRA) is one of the leading EPC players in India in the roads and highways segment. The company has excellent project execution track record in 8 States, and currently it has active projects in 5 states.

Its order book has clocked 46 per cent CAGR over the last five years, while outstanding order book at ₹6,400 crore as on H1-FY21 offers healthy revenue visibility.

Most of its under-execution projects have gathered momentum. Whilst the company did not secure any order in H1-FY21, it expects to add projects worth ₹3,500-4,000 crore in H2-FY21 considering the current bid pipeline of over ₹12,000 crore.

Its 3 out of 4 HAM projects are moving as per schedule and Appointed Date (AD) for the fourth project is expected shortly. The company has been deleveraging balance sheet.

Debt-equity ratio, which stood at 0.31x in FY20, helped the company generate superior return ratios. Whilst we have downwardly revised our earnings estimate by 27 per cent and 18 per cent for FY21 and FY22, to factor in lockdown-led revenue loss and soft order inflow in H1-FY21, we continue to view HG Infra as a quality play in EPC space owing to its superior execution expertise, robust order book, balance sheet strength and industry-leading return ratio.

We maintain Buy on HG Infra with a revised two-year target price of ₹392 from ₹400 earlier).