Management Speak: HG Infra Engineering (Unrated) - Poised for robust growth
Key highlights of our visit to Udaipur-Chittorgarh and Chittorgarh-Gulabpura project sites and our meeting with HG Infra Engineering Ltd (HG Infra).
Geared to execute robust order backlog: We visited the Udaipur-Chittorgarh and Chittorgarh-Gulabpura sites to get a perspective on the execution of these projects. We interacted with HG Infra management (currently executing the projects) to get a feel of the company’s projects and future growth plans. Both projects have been sub contracted to HG Infra for six-laning work. While Tata Projects has subcontracted the Rs4.8bn Udaipur-Chittorgarh project (length-63km; appointed date for the project was July 2017), IRB Infrastructure has subcontracted the Rs7.1bn Chittorgarh-Gulabpura project (length 75km; appointed date November 2017). To fructify its growth plans & service a robust order backlog of Rs53.1bn, HG Infra has spent ~Rs3.7bn in plant and machinery and almost tripled employee base to ~3,700 employees over last 2 years.
Execution momentum to sustain: HG Infra currently has a healthy order backlog of Rs53.1bn (3.8x FY18 revenues), post robust order inflows of Rs11.7bn in Q1FY19. The company also has a strong bid pipeline, which includes 22 packages of Vadodara-Gurgaon expressway of Rs8-10bn each, Kandla-Bhatinda project worth Rs350bn on EPC mode (currently under DPR stage). HG Infra is also looking to enter into new segments like airports and railways, given immense opportunities in these sectors. As a result, management has guided additional order inflows of Rs25bn for the remaining part of FY19 and 30% revenue growth over next 1-2 years, factoring in robust order backlog and full-swing execution.
Testing waters in HAM division: Although HG Infra is primarily an EPC-focussed road player, the company has ventured into HAM projects with Gurgaon-Sohna project (Package-2) from NHAI worth Rs6bn (EPC value: Rs5.2bn). However, the company is awaiting approval on financial closure documents submitted to NHAI. Land acquisition status for the project stands at 75%, for which the lender is Tata Cleantech (9.85% interest rate). The project requires equity commitment of Rs0.72bn, which given its low gearing (net D/E of 0.1x), should be quite comfortable for the company. Management said that while it would continue bidding for HAM projects, it would do so very selectively in order to avoid excessive equity infusion commitments.
Unrated; On a strong growth trajectory: HG Infra is well placed to capture robust opportunities in the road sector. The company is confident of robust execution, given its strong order backlog of Rs53.1bn (3.8x FY18 revenues) and expected order inflows (Rs25bn in remainder of the year). HG Infra’s EBITDA margins have been hovering at 11-15%. Furthermore, it has clocked an average RoE/RoCE of 26.5%/25.9% over FY13-18. Currently, the stock trades at 15.5x FY18 EPS. Unrated.
HG Infra Engineering Ltd (Part IX) Formerly known as HG Infra Engineering Part IX Ltd. H.G. Infra Engineering Limited is an India-based infrastructure construction, development and management company. The Company is focused on developing road projects, including highways, bridges and flyovers. Its main business operations include providing engineering, procurement and construction (EPC) services on a fixed-sum turnkey basis and undertaking civil construction and related infrastructure projects on item rate and lump sum basis, primarily in the roads and highway sector. Its projects include Uncha-Nagla, Sitarganj, Tonk-Sawai Madhopur, Manoharpur-Dausa, Morshi (Nandagaon-Morshi-Pkg-1), Bhandara, Saoner, Balotra, Chaksu Wpl, Chittorgarh-Udaipur, Jaisalmer, and Kaithal. The Company's projects are located in various states of India including Rajasthan, Uttar Pradesh, Haryana, Uttrakhand and Maharashtra.
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