H.G.

Infra Engineering
Buy

View: Good quarter, better show from Q3FY21E; maintain Buy CMP Rs 186
 HGINFRA reported results above estimates on all fronts. Target / Upside Rs 375 / 101%
 HGINFRA reported -1.4%/ 4.9%/ -15.3% YoY growth in revenue/ NIFTY 12,631
EBITDA/ PAT to Rs4.7 bn/ Rs769 mn/ Rs327 mn in Q2FY21. Scrip Details
 We broadly maintain our estimates for FY21E/ FY22E despite muted Equity / FV Rs 652mn / Rs 10
H1FY21 as we expect execution to pick up significantly from Q3FY21E Market Cap Rs 12bn
in projects worth Rs33.4 bn on receiving the appointed date coupled
USD 164mn
with stabilization of labour and supply chain issues. We introduce
FY23E and expect 4.2%/ 23.6%/ 23.3% revenue growth for FY21E/ 52-week High/Low Rs 295/ 126
FY22E/ FY23E. The company’s labour availability and efficiency is back Avg. Volume (no) 57,500
at pre covid levels. Bloom Code HGINFRA IN
 We expect revenue/ Adj. PAT CAGR of 16.7%/ 19.4% over FY20-23E. Price Performance 1M 3M 12M
Though the stock has corrected ~3% since our Q1FY21 result on 18
Absolute (%) 2 (1) (4)
Aug’20, it still looks attractive at 7.1x/ 5.7x/ 4.2x FY21E/ FY22E/ FY23E
EPS, hence we maintain BUY with SOTP of Rs375 (8x Sep’22E EPS) and Rel to NIFTY (%) (5) (13) (11)
1xFY22E P/B for HAM equity investments. We factor Rs2.0 bn/ Rs1.9
Result Update

bn/ Rs2.1 bn equity investment in HAM for FY21E/ FY22E/ FY23E). Shareholding Pattern
Mar'20 Jun'20 Sep'20
Robust return ratios coupled with comfortable working capital
Promoters 74.0 74.0 74.0
We expect NWC (excluding cash) days to remain at a comfortable level of
99/ 88/ 82 days in FY21E/ FY22E/ FY23E vs. 97/ 115 in FY19/ FY20. We MF/Banks/FIs 20.9 20.6 19.6
expect 0.25x/ 0.25x/ 0.21x Net D:E for FY21E/ FY22E/ FY23E and healthy FIIs 0.4 0.4 0.5
return rations (average RoE/ RoCE of 19.7%/ 18.5% over FY20-23E), led by Public / Others 4.7 4.9 5.9
strong PAT growth, comfortable NWC days, healthy balance sheet, and
healthy fixed asset turnover. Valuation (x)
FY21E FY22E FY23E
Order book at 3.3x, enhances revenue visibility
HGINFRA won orders worth Rs33.4 bn/ nil during FY20/ YTDFY21. The P/E 7.2 5.8 4.3
current order book (Rs64.4 bn) provides revenue visibility for 3.3x TTM EV/EBITDA 4.0 3.5 2.9
revenue. We maintain our order inflow estimates at Rs30 bn/ Rs40 bn/ ROE (%) 18.7 19.1 21.2
Rs40 bn for FY21E/ FY22E/ FY23E. RoACE (%) 17.9 18.5 19.3

Estimates (Rs mn)

Q2FY21 Result (Rs Mn) FY21E FY22E FY23E
Particulars Q2FY21 Q2FY20 YoY (%) Q1FY21 QoQ (%) Revenue 22,894 28,293 34,896
Revenue 4,674 4,742 (1.4) 2,979 56.9 EBITDA 3,608 4,287 5,303
Total Expense 3,905 4,009 (2.6) 2,488 56.9 PAT 1,690 2,080 2,822
EBITDA 769 733 4.9 491 56.6 EPS (Rs.) 25.9 31.9 43.3
Depreciation 208 181 14.9 195 7.0
EBIT 561 552 1.7 297 89.1
VP Research: Shravan Shah
Other Income 16 29 (45.7) 27 (39.7)
Tel: +91 22 40969749
Interest 138 108 28.0 122 13.0 E-mail: shravans@dolatcapital.com
EBT 439 474 (7.3) 201 118.2
Tax 113 88 27.7 50 123.2 Associate: Maulik Shah
RPAT 327 386 (15.3) 151 116.5 Tel: +91 22 40969775
APAT 327 386 (15.3) 151 116.5
E-mail: mauliks@dolatcapital.com
(bps) (bps)
Gross Margin (%) 23.1 23.1 (8) 25.4 (231)
Associate: Parth Bhavsar
EBITDA Margin (%) 16.5 15.5 100 16.5 (3)
Tel: +91 22 40969775
NPM (%) 7.0 8.1 (114) 5.1 192 E-mail: parthb@dolatcapital.com
Tax Rate (%) 25.7 18.6 703 25.1 58
EBIT Margin (%) 12.0 11.6 37 10.0 205

November 11, 2020

 Actual V/s DART estimates (Rs mn)
Particulars Actual DART Est % Variance Comments
Revenue (Rs mn) 4,674 4,248 10.0 Led by better execution
EBITDA (Rs mn) 769 626 22.8 -
Led by lower employee and other expenses
EBITDA% 16.5 14.7 171 bps
PAT (Rs mn) 327 221 47.9 Led by overall better performance
Source: Company, DART

Change in estimates – Broadly maintain FY21E/ FY22E and introduce FY23E estimates
(Rs mn) FY21E FY22E FY23E
New Old % change New Old % change New Old %change
Net revenues 22,894 23,601 (3.0) 28,293 29,039 (2.6) 34,896 - -
EBIDTA 3,608 3,537 2.0 4,287 4,357 (1.6) 5,303 - -
EBIDTA margin (%) 15.8 15.0 77 15.2 15.0 15 15.20 - -
Adj. Net Profit 1,690 1,631 3.6 2,080 2,159 (3.6) 2,822 - -
EPS (Rs) 25.9 25.0 3.6 31.9 33.1 (3.6) 43.3 - -
Source: DART, Company

Key earnings takeaways

 Most sites operational and company working at pre covid levels.
 Biding opportunities – Rs80 bn NHAI projects (4 EPC + 3 HAM) and Rs40 bn in
railways segments. HG is open to bid in new states like Jharkhand and
Chhattisgarh and new segments as well. Expect 15% of order book from Water
and Railways in next 3 years.
 Order inflow guidance of Rs35-40 bn (Rs20 bn HAM) in FY21E.
 Expect FY21E revenue at par with FY20 levels or can surpass it. Can expect 15%
EBITDA margins for FY21E. Lot of competition seen in EPC and HAM projects. 11-
15 bidders in HAM vs. 6-7 bidders earlier.
 HG had bid for 16 projects during YTDFY21 and lost all projects with being in the
range of L3-L8.
 Physical progress – Adani project 8% as on date, Gurgaon Sohna 65%, Hapur
Moradabad 33%, Delhi Vadodara Pkg-4 33%, Narnaul Bypass 37% and Rewari
Ateli 41%. Adani project and Hapur Moradabad were impacted by monsoon.
Expect 30%/ 50% execution in Adani project/ Hapur by FY21E. Gulabpura project
nearing completion and expect to complete by Jan’21E. Maharashtra projects
pending OB stands at Rs750 mn and Rs1.15 bn is stuck as land is not available.
 Project Update – Received AD of Adani project/ Delhi Vadodara Pkg 8 in Aug’20/
Nov’20. Received PCOD for 4 Maharashtra projects and expect 2 in Nov’20.
Expect appointed date of Delhi Vadodara Pkg 9 in Nov’20 and Rewari Ateli Pkg-
4 HAM FC is going on with Canara Bank at 8.75%, expect AD in Dec’20.
 Land status - 85%+ land is available for Rewari Ateli Pkg-4 HAM. 89% land is
available for Delhi Vadodara Pkg 9.
 Equity investment in HAM – HG to invest Rs760 mn/ Rs690 mn/ Rs300 mn in
H2FY21E/ FY22E/ FY23E.
 Rajasthan projects funded by WB – HG has received Rs920 mn (Rs600 mn/ Rs320
mn in Q1FY21/ Q2FY21) and Rs840 mn will receive in Nov’20. Total outstanding
debtors from this project is Rs2.68 bn. Expect Rs500-550 mn/ Rs1 bn in Dec’20/
Q4FY21E and balance in Q1FY22E. Balance orderbook to be executable is Rs450
mn and Rs500 mn is left and land is not available.

November 11, 2020 2 H.G. Infra Engineering

  Debtors from major projects - Rs2.68 bn Rajasthan WB projects, Rs1.11 bn IRB
projects, Rs190 mn GVK, Rs320 mn Tata projects.
 Gross Debt stands at Rs3.04 bn (Sept’20) vs. Rs3.8 bn (Jun’20) v/s Rs3.7 bn
(Mar’20). Debt guidance of Rs3 bn for FY21E.
 Capex of Rs110 mn done in H1FY21 and expect Rs600-700 mn in FY21E.
 Retention money/ Mobilization advance/ Unbilled revenue stood at Rs1.65 bn/
Rs2.53 bn/ Rs2.8 bn. Total limits is Rs11.2 bn (Rs9.8 bn/ Rs1.4 bn Non Fund/ Fund
based limits).
 Mobilization advance – Adani project received 5% mobilization advance in
Oct’20 and 5% is expected soon. HG expects Rs2.55 bn mobilization advance to
receive from various projects and expects Rs1.5 bn during FY21E.
 HG is likely to monetize couple of projects by Mar’21.

November 11, 2020 3 H.G. Infra Engineering

 Income statement (Standalone)
Particulars (Rs mn) Q2FY21 Q2FY20 YoY (%) Q1FY21 QoQ (%) H1FY21 H1FY20 YoY (%)
Revenue 4,674 4,742 (1.4) 2,979 56.9 7,653 10,003 (23.5)
Material consumed 2,446 1,732 41.2 1,407 73.9 3,853 4,007 (3.8)
Subcontract work 1,150 1,912 (39.9) 817 40.8 1,966 3,768 (47.8)
Employees cost 259 264 (2.1) 223 15.8 482 553 (12.9)
Other expenditure 50 100 (49.9) 41 21.0 92 146 (37.4)
Total expenditure 3,905 4,009 (2.6) 2,488 56.9 6,393 8,475 (24.6)
EBITDA 769 733 4.9 491 56.6 1,261 1,528 (17.5)
Depreciation 208 181 14.9 195 7.0 403 357 12.8
Operating profit 561 552 1.7 297 89.1 858 1,171 (26.8)
Other income 16 29 (45.7) 27 (39.7) 43 60 (29.1)
EBIT 577 581 (0.7) 323 78.5 900 1,231 (26.9)
Interest 138 108 28.0 122 13.0 259 230 12.7
EBT 439 474 (7.3) 201 118.2 641 1,001 (36.0)
Tax 113 88 27.7 50 123.2 163 271 (39.8)
Net income 327 386 (15.3) 151 116.5 478 730 (34.5)
EPS (Rs) 5.0 5.9 (15.3) 2.3 116.5 7.3 11.2 (34.5)
bps bps bps
EBIDTA Margin (Excl. O.I.) 16.5 15.5 100 16.5 (3) 16.5 15.3 119
EBIDTA Margin (Incl. O.I.) 16.8 16.1 72 17.4 (58) 17.0 15.9 115
NPM (%) 7.0 8.1 (111) 5.0 194 6.2 7.2 (104)
Tax/PBT (%) 25.7 18.6 703 25.1 58 25.5 27.1 (162)
Material cons/Revenue (%) 76.9 76.9 8 74.6 231 76.0 77.7 (169)
Source: DART, Company

SOTP Valuation
Component Valuation Method Rs/sh %
Standalone cons business 8x Sep’22E EPS 300.9 80.3
HAM Projects 1x FY22E P/B 73.9 19.7
Total 374.8 100.0
CMP 186.4
Potential upside (%) 101.1
Source: DART, Company

Rs64.4 bn geographical break up Orderbook trend

Telangana (Rs bn) (x)
14% 100 3.4 3.5
3.3
90 3.2
3.2 3.3
UP 3.1
80
14% 3.1
70
Rajasthan 2.7 2.9
60
Haryana 54%
50 2.7
15%
40 2.5
Maharashtra FY18 FY19 FY20 FY21E FY22E FY23E
3% Order book Order book/ revenue - RHS
Source: Company, DART Source: Company, DART

November 11, 2020 4 H.G. Infra Engineering

 16.7% revenue CAGR over FY20-23E EBITDA margins trend
(Rs bn) (%) (Rs mn) (%)
40 50 5,500 15.8 16.0
35 5,000 15.6 15.8
40
4,500
30 4,000 15.5
30 15.2 15.2
25 3,500 15.1 15.3
20 3,000 14.9
20 15.0
10 2,500
15 2,000 14.8
10 0 1,500 14.5
FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E
Revenue Growth (RHS) EBIDTA (Excl. O.I.) EBIDTA margin (RHS)
Source: Company, DART Source: Company, DART

Stable leverage Healthy return ratios

(Rs bn) 0.42 (x) 25 23.5
16 0.45
22.4
14 0.40 23
21.2
12 0.32 20.6
0.31 0.35 21
10 19.1
0.30 18.7
8 0.25 0.25 19
0.21 0.25 19.7 19.3
6 18.9
17 18.5
4 0.20 17.5 17.9
2 0.15 15
FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E
Gross Debt Networth Net D:E (RHS) RoANW (%) RoACE (%)
Source: Company, DART Source: Company, DART

November 11, 2020 5 H.G. Infra Engineering

 Profit and Loss Account
(Rs Mn) FY20A FY21E FY22E FY23E
Revenue 21,961 22,894 28,293 34,896
Total Expense 18,538 19,286 24,005 29,592
COGS 17,064 17,812 22,238 27,463
Employees Cost 1,114 1,114 1,281 1,473
Other expenses 360 360 486 657
EBIDTA 3,424 3,608 4,287 5,303
Depreciation 756 885 1,009 1,157
EBIT 2,668 2,724 3,278 4,146
Interest 524 560 590 450
Other Income 137 109 109 98
Exc. / E.O. items 0 0 0 0
EBT 2,281 2,273 2,797 3,795
Tax 623 583 717 973
RPAT 1,657 1,690 2,080 2,822
Minority Interest 0 0 0 0
Profit/Loss share of associates 0 0 0 0
APAT 1,657 1,690 2,080 2,822

Balance Sheet
(Rs Mn) FY20A FY21E FY22E FY23E
Sources of Funds
Equity Capital 652 652 652 652
Minority Interest 0 0 0 0
Reserves & Surplus 7,564 9,222 11,270 14,060
Net Worth 8,216 9,874 11,922 14,711
Total Debt 3,675 3,569 3,729 3,789
Net Deferred Tax Liability (87) (87) (87) (87)
Total Capital Employed 11,804 13,356 15,563 18,413

Applications of Funds
Net Block 4,824 5,017 5,008 5,351
CWIP 111 0 0 0
Investments 908 2,926 4,814 6,914
Current Assets, Loans & Advances 14,754 13,854 14,895 17,419
Inventories 1,055 1,350 1,560 1,923
Receivables 8,111 7,588 8,521 10,153
Cash and Bank Balances 1,144 1,105 805 673
Loans and Advances 74 40 40 40
Other Current Assets 4,369 3,771 3,969 4,630

Less: Current Liabilities & Provisions 8,794 8,442 9,154 11,271

Payables 8,314 7,521 8,042 9,913
Other Current Liabilities 480 920 1,112 1,358
sub total
Net Current Assets 5,960 5,413 5,742 6,148
Total Assets 11,804 13,356 15,563 18,413
E – Estimates

November 11, 2020 6 H.G. Infra Engineering

 Important Ratios
Particulars FY20A FY21E FY22E FY23E
(A) Margins (%)
Gross Profit Margin 22.3 22.2 21.4 21.3
EBIDTA Margin 15.6 15.8 15.2 15.2
EBIT Margin 12.1 11.9 11.6 11.9
Tax rate 27.3 25.6 25.6 25.6
Net Profit Margin 7.5 7.4 7.4 8.1
(B) As Percentage of Net Sales (%)
COGS 77.7 77.8 78.6 78.7
Employee 5.1 4.9 4.5 4.2
Other 1.6 1.6 1.7 1.9
(C) Measure of Financial Status
Gross Debt / Equity 0.4 0.4 0.3 0.3
Interest Coverage 5.1 4.9 5.6 9.2
Inventory days 18 22 20 20
Debtors days 135 121 110 106
Average Cost of Debt 14.0 15.5 16.2 12.0
Payable days 138 120 104 104
Working Capital days 99 86 74 64
FA T/O 4.6 4.6 5.6 6.5
(D) Measures of Investment
AEPS (Rs) 25.4 25.9 31.9 43.3
CEPS (Rs) 37.0 39.5 47.4 61.1
DPS (Rs) 0.6 0.5 0.5 0.5
Dividend Payout (%) 2.4 1.9 1.6 1.2
BVPS (Rs) 126.1 151.5 182.9 225.7
RoANW (%) 22.4 18.7 19.1 21.2
RoACE (%) 19.7 17.9 18.5 19.3
RoAIC (%) 21.8 19.6 19.8 20.1
(E) Valuation Ratios
CMP (Rs) 186 186 186 186
P/E 7.3 7.2 5.8 4.3
Mcap (Rs Mn) 12,148 12,148 12,148 12,148
MCap/ Sales 0.6 0.5 0.4 0.3
EV 14,679 14,611 15,071 15,263
EV/Sales 0.7 0.6 0.5 0.4
EV/EBITDA 4.3 4.0 3.5 2.9
P/BV 1.5 1.2 1.0 0.8
Dividend Yield (%) 0.3 0.3 0.3 0.3
(F) Growth Rate (%)
Revenue 9.3 4.2 23.6 23.3
EBITDA 12.9 5.4 18.8 23.7
EBIT 17.1 2.1 20.4 26.5
PBT 19.9 (0.3) 23.1 35.7
APAT 34.1 2.0 23.1 35.7
EPS 34.1 2.0 23.1 35.7

Cash Flow
(Rs Mn) FY20A FY21E FY22E FY23E
CFO 2,550 3,568 2,941 3,792
CFI (1,688) (2,908) (2,779) (3,502)
CFF (720) (699) (463) (423)
FCFF 1,618 2,568 1,941 2,292
Opening Cash 1,002 1,144 1,105 805
Closing Cash 1,144 1,105 805 673
E – Estimates

November 11, 2020 7 H.G. Infra Engineering

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (Rs.) Price (Rs.)

(Rs) HGINFRA Target Price Nov-19 Buy 499 194
520 Nov-19 Buy 515 257
440 Jan-20 Buy 515 267
Mar-20 Buy 355 137
360 Mar-20 Buy 355 151
Jun-20 Buy 337 201
280
Aug-20 Buy 330 192
200 Sep-20 Buy 330 200

120
Jul-20
Nov-19

Dec-19

Jan-20

Jun-20

Aug-20

Sep-20

Nov-20
Mar-20

Apr-20

Oct-20
Feb-20

May-20

*Price as on recommendation date

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS
Equity Sales Designation E-mail Direct Lines
Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Yomika Agarwal VP - Equity Sales yomika@dolatcapital.com +9122 4096 9772
Jubbin Shah VP - Derivatives Sales jubbins@dolatcapital.com +9122 4096 9779
Ashwani Kandoi AVP - Equity Sales ashwanik@dolatcapital.com +9122 4096 9725
Lekha Nahar AVP - Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Dinesh Mehta Co- Head Asia Derivatives dinesh.mehta@dolatcapital.com +9122 4096 9765
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

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