HDFC Securities' research report on H.G. Infra Engineering
HG Infra Engineering (HG) is an EPC company with focus on highways, roads and bridges in addition to civil works and water supply projects. It has been a sub-contractor for established players like L&T, Tata Projects and IRB Infra. Strong and persistent execution has helped it transform from a sub-contractor to a frontline EPC bidder. HG has grown to pre-qualify for projects up to Rs 11.2/16.0bn in EPC/HAM respectively. The transformation is visible, with HG quadrupling its revenues over FY13-18. With a further pickup in NHAI orders in 2HFY19E, EPC players will only add to their FY18E book/bill of ~ 3.3x. This should address longevity concerns on their earnings up-cycle.
Outlook
For HG, EPS should rise to Rs 24.7/sh in FY20E. HG has a firm grip over working capital (and hence, debt) and should deliver high RoEs >20%. We initiate coverage with a TP of Rs 386/sh (valuing core EPC operations at 15x FY20E EPS). BUY.
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