“BUY” This Small Cap Infrastructure Stock For 50% Upside: Axis Securities

The brokerage’s take on H. G. Infra Engineering Ltd

In its research report, the brokerage has said that "HGIEL's order book, comprising road projects (both EPC and HAM), stood robust at Rs 6,843 Cr (2.70x of FY21 revenue) as of Sep'21 end. Furthermore, its cumulative order book stands healthy at Rs 9,066 Cr, reflecting comfortable revenue visibility for the next 2-3 years. While the company continues to capture opportunities in the construction space, it is increasingly eyeing the public sector opportunities to capitalize on the government's spending on Infra development such as railways and water supply projects, etc. This is expected to keep order inflows robust moving forward. We estimate HGIEL to deliver healthy revenue growth of 23% CAGR over FY21-FY24E backed by its strong and diversified order book as well as emerging opportunities."

According to Axis Securities "The road construction industry in India is undergoing a paradigm shift with notable investments in this space and the government's proactive policy support. Under Phase-I of the Bharatmala Pariyojana Highway Development program, the government has approved 34,800 Km of national highways projects (out of 65,000 Km) and has earmarked an outlay of 5.4 Lc Cr, to be utilised through both the EPC and HAM models. Furthermore, the government has undertaken several policy initiatives such as the Land Acquisition act, fast-tracking arbitration claims process, introduction of new EPC (Engineering, Procurement, & Construction) policy, implementing Hybrid Annuity Model (HAM) and Toll Operate Transfer (TOT), among others. These initiatives are expected to aid significantly in the overall development of the sector moving ahead, thereby creating massive growth opportunities for the company as well."

The brokerage has claimed that "HGIEL has successfully executed various roads and highways projects over the years and has emerged as the leading EPC contractor in India with robust project execution skills. To augment its execution prowess further, the company continues to acquire necessary technical expertise and modern construction equipment, develop and augment quality control procedures and skilled manpower resources. The company's management has over two decades of rich experience and is well-poised to catapult the company into the higher growth phase. We believe HGIEL is well-positioned to capitalise on the emerging opportunities in the infrastructure sector in EPC and HAM projects such as from NHAI, Airport, Railways, and Water Supply projects. With superior order inflows, we expect the company to maintain a margin profile of 16%-17% over FY21-24E."

Buy H. G. Infra Engineering Ltd Says Axis Securities

According to the research report of the brokerage "The company's outlook over FY22E-24E continues to be robust considering high order book with 2-3 years of revenue visibility, encouraging traction in road projects, favourable industry tailwind, and the company's robust track record of high-quality and timely project execution. These factors will ensure higher revenue growth for the company going forward. Furthermore, diversification in the related segment such as Railways, Water Supply, and Airports will enable it to de-risk its business which currently comprises road projects."

The brokerage claims that "We estimate HGIEL to report Revenue/EBITDA/APAT CAGR of 23%/23%/31% respectively over FY21-FY24E, supported by its robust and diversified order book, healthy bidding pipeline, encouraging new order inflow, emerging opportunities in the construction space, and execution prowess. Currently, the stock is trading at 10x and 8x of FY23E and FY24E EPS. We initiate coverage with a BUY rating and value the company's EPC business at 11x FY24E EPS and HAM portfolio at 1x book value to arrive at a target price of Rs 855/share. TP implies an upside potential of 50% from the CMP."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.