Pick Of The Week: 3 Reasons Why This Smallcap Infra Stock Is Hot Bet, TP Set At Rs 935

HG Infra Engineering is a small-cap stock with businesses in the construction, development, design, and management of infrastructure projects. Brokerage Axis Securities has selected this infra share as the pick of the week with a target price set at Rs 935, implying a potential upside of nearly 8% ahead. In nearly two decades, the company has successfully transformed itself into a primary road developer from a subcontractor and has completed over 35 projects during this period.

Axis Securities in its investment rationale explained three reasons to invest in HG Infra stock price. These are:

1. Robust order book:

The company's order book stands healthy at Rs 10,678 Cr (as of 30th Sept 23), comprising 51% from the EPC road projects and the balance 49% from the HAM road projects. 70% of total projects are from the government of India and the balance 30% are from the Private sector, implying revenue visibility for the next 2-3 years.

The brokerage expects the company to post revenue growth of 18% CAGR over FY23-FY25E.

2. Segment diversification:

In the Union Budget 2023-24 Capex outlay was increased by 25% for the Road sector, 27% for Jal Jeevan Mission (JJM) and 49% for railways thereby creating significantly larger opportunities for companies like HG infra.

Also, the company is diversifying into segments other than road segments to capitalize on these massive opportunities. In this view, Axis Securities expects 20%-25% revenue contribution from segments other than roads. The bidding pipeline is also strong in Roads, JJM and railway segments.

Notably, the company's management is expecting an order inflow of Rs 5,000-6,000 Cr in FY24 with EBITDA margins in the range
of 15.5%-16%.

3. Healthy monetization of HAM assets:

The HAM asset monetization at 1.5x of invested equity in four SPVs augurs well for the company. This will ensure capital infusion in prospective HAM projects. The monetization is progressing as expected.

On its valuation, Axis Securities note said, "We continue to like the company's execution capability, its order book position, healthy balance sheet and high return ratios and we expect it to report Revenue/EBITDA/APAT growth of 18%/16%/18% CAGR over FY23-25E. The stock is currently trading at 11x and 10x FY24E/FY25E EPS which we believe is attractive."

On BSE, HG Infra shares stood at Rs 866.40 apiece, up by 2.2% on Monday. Its market cap is at Rs 5,646.43 crore. YTD, the stock has gained by over 34%. In a year, its upside is nearly 50%.

Recently, the company received a letter of award from NTPC Ramagundam for NHAI road construction projects. The award value is Rs 36.20 crore. The work commenced on December 4, 2023, and the validity of the contract is one year with an extendable time frame of another six months.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.