Maintain BUY on HG Infra - Working capital improvement awaited - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

HG Infra reported revenue at Rs 3bn (7% miss). However, APAT was nearly 3x our estimate on better than expected EBITDA margin and lower interest expense. Labour availability has improved to 85% of the required labour force. While HG did not secure any orders during the quarter, it aims to win Rs 30-40bn during FY21. Order backlog is robust at Rs 68bn (3.1x FY20 revenue). Standalone net debt increased to Rs 2.7bn from Rs 2.5bn on Mar-20 as working capital nearly doubled to Rs 1.4bn from Rs 0.7bn on Mar-20. Realization of receivables from Rajasthan project key for reduction in debt. We maintain BUY on HG with a SOTP based target price of Rs 337/sh, valuing the EPC business at 10x FY22E EPS. Key risks: (1) slowdown in NHAI ordering and (2) delays in receipt of pending dues from the Rajasthan project.

Execution misses estimate; surprises on margin: HG infra reported Rs 3bn of revenue during 1QFY21, down 43%/52% YoY/QoQ and 7% below our estimate. However, EBITDA was 22% ahead of our estimate as EBITDA margin improved by 138/21 bps YoY/QoQ. Consequently, APAT came in at Rs 151mn, 3x our estimate on lower interest expense, depreciation charge, and higher other income.

Normalization of labour, commencement of work on rest of the order book to drive execution: The company has Rs 68bn of outstanding order backlog as of 1QFY21. With four projects in the final stages of land acquisition moving into execution in the next 2-3 months, and labour availability improving to the required level in 1-2 months, HG is well-poised to register low single-digit revenue growth in FY21.

No order wins in 1QFY21; targeting Rs 30-40bn of new orders in FY21: Despite the pick-up in ordering activity by NHAI, HG could not secure any order during the quarter as it remained conservative in bidding. HG is targeting to win Rs 30-40bn new orders during FY21 with 75% in EPC and rest in HAM.

Debt position comfortable; Rajasthan receivable realization key monitorable: HG's standalone net debt stood at Rs 2.7bn (including Rs 0.5bn in promoter loans) vs. Rs 2.5bn QoQ. Working capital debt nearly doubled from Rs 0.7bn on Mar-20 to Rs 1.4bn, mainly on increase in unbilled revenue. HG infused Rs 550mn equity in HAM projects in 1Q and has, so far, invested Rs 250mn in 2Q. Management plans to infuse Rs 1.8bn equity in HAM projects in current fiscal. In the Rajasthan WB-funded project, HG has Rs 2.7bn outstanding receivables as of 1QFY21. With Rs 1.4bn unexecuted works of the project expected to be completed by 3QFY21, the company expects to realize a large part of the pending dues during this fiscal.

Shares of H.G. Infra Engineering Ltd was last trading in BSE at Rs.197.4 as compared to the previous close of Rs. 192.85. The total number of shares traded during the day was 26989 in over 1510 trades.

The stock hit an intraday high of Rs. 208 and intraday low of 191.1. The net turnover during the day was Rs. 5461862.

Source : Equity Bulls

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