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Last Updated : Feb 26, 2018 11:56 AM IST | Source: Moneycontrol.com

HG Infra Engineering IPO opens: Should you subscribe?

The IPO consists of a fresh issue of shares aggregating up to Rs 300 crore and an offer for sale of up to 60 lakh scrips by the existing shareholders.


HG Infra Engineering, infrastructure company, is coming out with its initial public offering (IPO). The issue is scheduled to open on February 26, and close on February 28, 2018.

The price band of the issue is Rs 263-270 per equity share of the company of face value of Rs 10 each.

The IPO consists of a fresh issue of shares aggregating up to Rs 300 crore and an offer for sale of up to 60 lakh scrips by the existing shareholders.

At the upper end of the price band, the public issue is expected to fetch Rs 462 crore.

The net proceeds of the IPO will be utilised towards purchase of capital equipment, repayment/ prepayment in part or in full, of certain indebtedness, and for other general corporate purposes.

SBI Capital Markets and HDFC Bank will manage the company's IPO.

Brokerage: INDSEC Securities | Rating: Subscribe

The primary business operations include providing 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.

We expect the company’s growth trajectory to gather momentum along with improvement in their margin profile going ahead. The company currently has a debt-equity ratio of 0.9x in FY17, which is expected to be cut down with the repayment of Rs. 1,155.52mn from the IPO proceeds. This in turn should boost their bottom line margins considerably.

Brokerage: Hem Securities | Rating: Subscribe

As of November 30, 2017, company had a total order book of Rs 37,078.10 million, consisting of 21 projects in the roads and highways sector, four civil

construction projects and two water supply projects.

The company being established roads and highways sector focused construction developer with efficient business model has healthy order book which provides strong revenue visibility in future. Hence we recommend subscribe on issue.

Brokerage: SPA Securities | Rating: Subscribe

Over the last five years, the company has executed 13 projects above the contract value of Rs 400mn in the roads and highways sector. In the last three years, it has invested Rs 1.7bn towards procurement of fleet of modern construction equipment to ensure high quality and timely execution.

The revenue/EBITDA of the company has grown at a CAGR of 30.8%/33.2% from FY14 to FY17. EBITDA margin expanded by 60 bps over FY14-17 to 11.4% in FY17. PAT has grown at a CAGR of 69.8% in the same period with expansion in PAT margin by over 270 bps over FY14-17.

Brokerage: IIFL | Rating: Subscribe

The company has earned early project completion bonus due to its remarkable execution capabilities and currently operates at decent double-digit operating margins.

Post utilization of IPO proceeds, amid a declining debt, company would also qualify to the bid for largest project as single bidder. Additionally, it also use part of proceeds towards equipment purchase. Consequently, profitability would improve.

Brokerage: Nirmal Bang | Rating: Subscribe for long term gains

Over the last four years (FY13-17), the company has demonstrated good execution skills with revenues growing at 34% CAGR, one of the highest in the listed space. During this period, the company successfully transformed from being a sub contractor to a prime contractor.

With an order book of Rs. 3708 Cr (3.5x FY17 Sales) the company offers strong growth visibility for coming years.

Brokerage: Centrum Wealth Research | Rating: Subscribe for long term

Over the last 3 years the company has invested Rs 173 crore towards machinery so as to reduce dependence on third party suppliers. The risk includes, delay in project execution (on account of regulatory issues), geographic concentration risk (Maharashtra and Rajasthan contribute 51% and 44%, respectively to order book), and slow awarding of projects.

Brokerage: ICICIdirect | Rating: Subscribe

Its strong execution capabilities along with healthy order book & strong opportunities ahead lends us comfort over robust execution, going forward. Hence, we recommend subscribe on issue.

Brokerage: Choice Broking| Rating: Subscribe

At the higher price band of Rs 270 per share, HGIEL’s share is valued at a P/E multiple of 33x (to its restated FY17 EPS of Rs. 8.2), which is in-line to the peer average of 33.8x.

The company is one of the few players in India to have an owned large fleet of modern construction equipment and transportation vehicles. In H1 FY18, the investment over the plant & machinery formed around 90% of the gross block of Rs 4.3bn.
First Published on Feb 26, 2018 09:24 am
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