Emkay Global Financial's report on HG Infra Engineering
HG Infra has transformed itself from a sub-contractor in the road sector to one of the large EPC players with a HAM portfolio. This transformation, along with high volume, helped HG Infra increase the margin from ~12% in FY17 to ~16% in FY21. Investments in people, plants and processes boosted growth (29% sales CAGR over FY16-FY21) and the IPO in 2018 ensured a strong balance sheet. Working capital management has been among the best in the industry. The government's focus on the road sector will ensure strong growth in the medium term, while diversification in areas like water, railways and urban infrastructure will keep long-term growth prospects in the EPC business buoyant.
Outlook
We initiate coverage on HG Infra with a TP of Rs800, based on SoTP. We value the standalone EPC business at 13x Sept'23E EPS of Rs59, implying a value of Rs760/share. We value the investment in HAM at 1x Book - Rs40/share.
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