H.G. Infra Engineering Ltd - AVOID - IPO Update - SSJ Finance

Atish Matlawala, Senior Analyst, SSJ Finance & Securities Pvt Ltd.

The Company was incorporated as ‘H G Infra Engineering Private Limited' on January 21, 2003 at Jodhpur. The company was formed pursuant to the conversion of a partnership firm, M/s Hodal Singh Giriraj Singh & Co., Jodhpur (the "Partnership Firm") into the company. The Partnership Firm was constituted for the purpose of carrying out the business of, among others, Public Works Department ("PWD"), Railways, Irrigation Department or any other Government or Semi-Government Departments in respect of Roads, Bridges, Dams, Supply of Material and Technical Consultation.

Established Roads and Highways sector focused construction developer

H G Infra has an experience of over 14 years in construction and development of major infrastructure road projects including Highways, Bridges, Flyovers and other related Infrastructure Activities, across various states in India covering Rajasthan, Uttar Pradesh Haryana, Uttarakhand, Maharashtra and Arunachal Pradesh. The revenue from execution of projects in the Roads and Highways sector constituted approximately 86%, 86.02%, 89.57%, 85.95% and 92.89% of their total consolidated revenue in the 6 months ended Septembber 30, 2017 and Fiscals 2017, 2016, 2015 and 2014, respectively.

Efficient business model

Company's growth is largely attributable to their efficient business model which involves careful identification of their projects and cost optimisation, which is a result of executing their projects with careful planning and strategy. This model has facilitated them in maximising the efficiency and increasing their profit margins. Additionally, their fleet of modern construction equipment ensures better control over execution and timely completion of projects.

Strong order book

Company's growth strategy has been focused on selecting quality projects with potentially higher margins. By expanding their operations in different geographical regions, they are able to pursue a broader range of project tenders and therefore maximize their business volume and contract profit margins. The order book has grown significantly over the last three years, from Rs.1,067.70 crore as of March 31, 2015, to Rs.1,446.27 crore as of March 31, 2016 and Rs.4,019.09 crore as of March 31, 2017, respectively. As of November 30, 2017, the total order book was Rs.3,707.81 crore, with government contracts accounting for 67.71% and private contracts accounting for 32.29% of the Order Book. H G Infra has pre-qualified to bid independently on an annual basis for bids by NHAI and MoRTH of contract value up to Rs.806.66 crore based on their technical and financial capacity.

Valuation

H G Infra has reported a CAGR of 30.8% and 42.1% on revenue and net profit fronts respectively over FY2014-2017. On its upper band of price of Rs 270, the issue is priced at PE ratio of 24.9x of its H1FY2018 annualised EPS of Rs 10.8. We believe IPO is overpriced leaving little for investors. Hence, we recommend to Avoid the IPO.

Source : Equity Bulls

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