Centrum Broking

HG Infra Engineering (Buy)

CMP: ₹204.5

Target: ₹320

HG Infra Engineering’s (HG) Q4FY20 earnings came ahead of estimate led by higher margins and lower tax rate. While NWC position remained steady, receivables remained elevated and were offset by higher payables and mobilisation advances. PAT grew 39.5 per cent y-o-y to ₹51.3 crore and was above our estimate of ₹44.4 crore. Revenue grew 7.4 per cent y-o-y at ₹620 crore (est: ₹640 crore) impacted partly by Covid disruption. EBITDA grew 8.8 per cent y-o-y to ₹100 crore (est: ₹90.8 crore) and EBITDA margins expanded 20 bps y-o-y to 16.3 per cent (est: 14.2 per cent). Interest costs declined 3.4 per cent y-o-y to ₹15.9 crore but was above our estimate of ₹12.4 crore due to higher mobilization advances (₹200 crore in Mar-20 vs ₹87.3 crore in March-19). HG has written off receivables worth ₹5 crore/ ₹11.5 crore in Q4/FY20 from one of its legacy projects. Consolidated PAT stood at ₹54.3 crore/ ₹170 crore in Q4/ FY20.

Valuation: HG’s strong order book with a progressive improvement in share of executable orders over next 6 months gives it strong scalability potential. Margins have remained steady and leverage should continue to remain low at 0.5x Net Debt/EBITDA (1.2x after including mobilisation advances as debt). Valuations at 9.6x/6.4x FY21/22E EPS are inexpensive and protect downside.