Buy HG Infra Engineering; target of Rs 282: YES Securities

YES Securities' research report on HG Infra Engineering

HG Infra Engineering reported topline de-growth of 43.4% yoy (~Rs.3.0bn) which was impacted due to COVID-19 related shutdown. Operating margin, however, remained at an elevated level of 16.5% (+138 bps yoy) led by higher contribution from better margin HAM projects. PAT stood at Rs.151mn (-56.1% yoy). At the end of Jun’20, HG Infra’s order book stood healthy at ~Rs.68bn (3.5x TTM revenues). The company has not won any major projects during YTD FY21. However, the management seems confident of securing orders worth ~Rs.35bn during FY21. The company is currently running at ~70-80% efficiency levels. Also, labor strength across project sites have improved to 80%+ of the pre-Covid levels. With this, the management expects operations to get normalized by Sept’20-end. Faster than expected re-mobilization of labor is likely to aid company in ramping-up operations. Also, timely receipt of appointed date in pending HAM projects would support execution in H2 FY21. We have largely retained our revenue estimates for FY21 and FY22, and we believe the company is well placed to speed up execution as COVID related impact settles. We have however increased our operating margin estimates to 15% (in FY22) with better project mix. Decent balance sheet position provide comfort.

Outlook

We maintain our BUY rating for revised target of Rs.282 (Based on SOTP valuation).