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HDFC Securities
HG Infra (Buy)
CMP: ₹238.95
Target: ₹386
HG Infra Engineering (HG) is an EPC (engineering, procurement, construction) company with focus on highways, roads and bridges in addition to civil works and water supply projects. It has been a sub-contractor for established players such as L&T, Tata Projects and IRB Infra. Strong and persistent execution has helped it transform from a sub-contractor to a frontline EPC bidder. HG has grown to pre-qualify for projects up to ₹1,120/1,600 crore Rs 11.2/16 .0bn in EPC/HAM respectively. The transformation is visible, with HG quadrupling its revenues over FY13-18.
With a further pick up in NHAI orders in 2HFY19E, EPC players will only add to their FY18E book/bill of about 3.3x. This should address longevity concerns on their earnings up-cycle. For HG, EPS should rise to ₹24.7/share in FY20E.
HG has a firm grip over working capital (and hence, debt) and should deliver high RoEs of more than 20 per cent. We initiate coverage with a TP of ₹386/share (valuing core EPC operations at 15x FY20E EPS).
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