Building Dreams: HDFC Securities Urges Investment in HG Infra, Sets Heartfelt Target at Rs 1201

HG Infra (HG), a company in the infrastructure sector, recently reported a quarter with results that were not as strong as expected. They fell short of our predictions by 8.2% on one measure, 6.9% on another, and 11.1% on yet another.

The Order Book (OB), which is the total value of projects they have to work on, reached around INR 116.7 billion by June 2023. This is about 2.6 times their revenue for the financial year 2023.

The company confirmed its revenue target for the full year 2024, which is expected to be between INR 50 billion and INR 55 billion. This would be a growth of 20-25% compared to the previous year. They also mentioned that they anticipate their EBITDA margin, a measure of profitability, to be around 16%.

However, on the new projects coming in, the company revised its guidance. They initially expected new orders worth INR 80-90 billion, but now they expect it to be around INR 70-80 billion.

To fund their projects and operations, the company needs money. They have already put INR 7.6 billion into various projects as of June 2023 out of a total equity requirement of INR 15.9 billion for twelve HAM (Hybrid Annuity Model) projects.

They plan to invest more - around INR 4.1 billion in the rest of the current financial year, and then INR 2.7 billion and INR 1.6 billion in the following two years. They also plan to spend INR 1 billion each in the next two years on capital expenditure.

The company's debt, which is the money they owe, has increased. As of June 2023, their standalone net debt reached INR 5.5 billion.

Looking forward, the company is hopeful about monetizing (earning money from) three out of four of their HAM projects by the third quarter of the financial year 2023. Despite the challenges, with their good execution of projects, a strong order book, better profitability, and future monetization plans, we maintain a "BUY" recommendation for investing in their stock.

We have adjusted our target price to INR 1,201, considering their expected earnings for the fiscal year ending in June 2025, with a multiple of 14 times the projected earnings per share.

"Building Dreams: HDFC Securities Urges Investment in HG Infra, Sets Heartfelt Target at Rs 1201"

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