HG Infra Engineering Ltd - Q2 FY21 Result Update - YES Securities

Execution set to pick up: Q2 FY21 Call Highlights

- Execution levels saw strong pickup with better labor availability and easing of lockdown. The execution now stands at Pre-COVID levels.

- Currently order book stands at Rs.64.4 bn of which HAM and EPC mix is at 22%:78%. The company saw no new order inflows during the quarter as competition was high and Company did not want to compromise on margins to bag orders. However, the company is optimistic of getting Rs 30-40 bn during 2H FY21 as there is a strong order pipeline. The Company has bid for projects in Rail segment and some NHAI projects. The company also looking at water supply projects. It is not evaluating opportunity in Airport projects as of now. It has bid for projects across states like Maharashtra, Gujarat, Haryana.

- With the Order book in hand and almost entire order book moving into execution during Q3/Q4 FY21, the company is targeting to end FY21 with flat to marginal growth over FY20.

- The company has completed 69% in Gurgaon-Sohna project (HAM), 41% in Rewari Ateli Mandi and 37% in Narnual Bypass. The Rewari Ateli Mandi Pkg-4 project is yet to receive FC but the FC has been sanctioned and documents submitted to NHAI. The FC has been done with Canara bank with interest cost of 8.75% . The Company expects appointed date by end of November for this project (land availability at 85% currently).

- The Company is also in talks to monetize certain existing HAM projects.

- The Company received appointment date of 7th Nov for Delhi-Vadadora Package-8 on EPC mode. The company has also received PCOD for 4 out of 7 projects in Maharashtra and 2 are expected to come soon. It has also received appointment date in August for Adani-Mancherial - Repallewa project and has completed 5% of the project. The project has been slow due to monsoon. Similarly Hapur Morradabad project too was slow due to heavy monsoon but will pick pace going forward. The company targets 30% and 50% completion by FY21 end in Adani project and Hapur Morradabad project respectively. Gulabpura project will complete by January (70% complete till now).

- Rajasthan pending receivables stood at Rs.2.68 bn. Rs.320 mn received during Q2 (Received Rs 600 mn in 1Q). Additionally, Rs.840 mn has been sanctioned in October and expected to be received in next one week. In terms of execution Rs.5.1 bn worth of work has already been executed, Rs450 mn would be executed in Q3 and balance Rs.500 mn would be executed by signing supplementary agreement.

- Debt at end of September 2020 stood at Rs.3 bn of which Rs.1.9 bn towards term loan, Rs 800 mn working capital and Rs. 335 mn promoter loan. It targets debt to be at similar levels for the year. Cash balance stood at Rs.1.35 bn.

- Capex addition stood at Rs.310 mn during 1H and the Company also sold few equipment's amounting Rs.210 mn. Net addition is Rs.110 mn. Rs.600-700 mn is capex target for the year.

- Equity requirement in HAM projects stands at Rs. 760 mn in remaining part of FY21, Rs. 680 mn in FY22 and Rs. 300 mn in FY21.

Our view

With appointed dates in place for most projects, better labor availability and Monsoon impact largely behind, the pace of execution is set to pick up. Operating margin is expected to remain healthy at ~15% levels. The order book is currently comfortable with ~ 3x FY20 revenues. The current bid pipeline would ensure opportunity to bag orders over the next few months. We retain our estimates for FY21/22 and maintain our BUY rating for target of Rs.282 (based on SOTP valuation).

HG Infra Engineering Q2 FY21 result summary

- HG Infra reported topline de-growth of 1.4% yoy (to ~Rs.4.7 bn). This was marginally better than our estimate of Rs.4.5 bn topline. The execution improved sharply on qoq basis with better labor availability and easing of lockdown.

- Operating margin improved to 16.5% (+100 bps yoy and flat qoq) in line with our estimate.

- PAT stood at Rs.327 mn (-15.3% yoy) and was in line with our estimate of Rs.324 mn.

- Order book at the end of Q2 FY21 stood at ~Rs.64 bn.

Shares of H.G. Infra Engineering Ltd was last trading in BSE at Rs.189.5 as compared to the previous close of Rs. 186.6. The total number of shares traded during the day was 4783 in over 204 trades.

The stock hit an intraday high of Rs. 191.05 and intraday low of 188.4. The net turnover during the day was Rs. 907998.

Source : Equity Bulls

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