YES Securities' research report on HG Infra Engineering
HG Infra reported 7.4% yoy topline growth during Q4 FY20 despite 10 days of work impacted owing to COVID related lockdown. Its operating margin remained robust at 16.3% (up 20bps yoy). Also, muted depreciation and interest cost coupled with lower tax outgo led to a 39.4% jump in net profit. At the end of Mar’20, HG Infra’s order book stood at ~Rs.71 bn (3.2x FY20 revenues). Share of EPC projects stood at 76% with balance from HAM segment. The company has faced significant execution issues related to labor and supply chain during the initial phase of lockdown. However, the situation has now improved with ~50% labor availability and expected to normalize by end of Monsoon period. As per the company, ~Rs.700 bn of orders were in pipeline during March 2020 which could not be bid out due to COVID related lockdown, The Company expects a large part of these orders to be bid out in next 2-3 quarters. With the COVID impact on topline and margins, we cut our estimates for FY21 and FY22.
However, we believe, the Company is well placed to speed up execution as COVID related impact settles. Decent balance sheet position provide comfort. We maintain our BUY rating on the stock for revised target of Rs.270 (Based on SOTP valuation).
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