HG Infra hits new high on strong Q4 earnings; zooms 58% thus far in 2023

Given its healthy project pipeline, ICRA expects HGIEL to maintain a healthy revenue growth of ~18-20%, steady operating margins (~16%) and comfortable leverage and coverage indicators in FY24

Shares of HG Infra Engineering (HGIEL) hit a new high of Rs 977.15 as they rallied 7 per cent on the BSE in Thursday's intra-day trade after the company reported a strong 64 per cent year-on-year (YoY) jump in its consolidated profit after tax (PAT) of Rs 171 crore in the January to March quarter (Q4FY23). The civil construction company had posted PAT of Rs 104 crore in Q4FY22.

The company's consolidated revenue from operations grew 44 per cent YoY to Rs 1,535 crore as against Rs 1,065 crore in the year-ago quarter. Ebitda (earnings before interest, taxes, depreciation, and amortization) margin improved 120 bps to 19.3 per cent from 18.1 per cent.

As on March 31, 2023, the company's order book position remained strong at Rs 12,766 crore. Of this total order book, Rs 11,300 crore orders are of highway projects and the remaining Rs 1,466 crore from other sectors. During Q4FY23, the company declared further orders totaling around Rs 3,000 crore.

ICICI Securities have a positive outlook on HG Infra mainly on account of its comfortable order book position, better revenue visibility, healthy operating margin, comfortable balance sheet position (to be further enhanced post asset monetisation proceeds) and healthy return ratios.

Thus far in the current calendar year 2023 (CY23), the stock price of HG Infra has zoomed 58 per cent, as compared to 1.3 per cent rise in the S&P BSE Sensex.

Given its healthy project pipeline, rating agency ICRA expects HGIEL to maintain a healthy revenue growth of around 18-20 per cent, steady operating margins (16 per cent) and comfortable leverage and coverage indicators in FY24.

The Stable outlook on the long-term rating reflects ICRA’s opinion that the company would witness a sustained revenue growth over the medium term on the back of a healthy order book, strong execution capabilities and established relationship with reputed clientele.

"The company’s ability to complete the project in a timely manner, given the large scale, along with timely realisation of payments from Adani Road Transport Limited (ARTL) remains a key monitorable. It also remains exposed to high segment and client concentration risks with ~90 per cent of order book consisting of road works, mainly from the NHAI and ARTL," it said.

With addition of new orders from the railway and metro divisions, the segment concentration risk will get mitigated to some extent. Over the medium term, the company is planning to enter drinking water projects (under Jal Jeevan Mission), which should aid segmental diversification going forward.

"Given the increasing scale of operations and sizeable equity commitments, HGIEL’s ability to judiciously manage its working capital cycle and maintain its execution ramp-up remain important from the credit perspective. The debt structure has cross-default linked debt acceleration clause, which if materialises, could expose the company to refinancing risk," the rating agency said in rationale.