HG Infra Engineering Lmited

Jodhpur based HG Infra Engineering IPO comprises fresh issue of equity shares worth Rs. 300 crore and offer for sale of shares to the tune of Rs. 162 crore.  HG Infra Engineering Ltd is a infrastructure construction, development and management company with extensive experience in the area of road projects, including highways, bridges and flyovers.  Started in 2003, HG Infra Engineering (HGIEL), based in Jodhpur, has evolved as a major player in the road construction sector and has a major foothold in Rajasthan, and Maharashtra and presence in some other states too.

HG Infra Engineering  IPO Details
Issue Period Mon, February 26, 2018 – Wed, February 28, 2018 
Issue Details Fresh Issue  of Rs.300 Cr + Offer for Sale of 6,000,000 Equity Shares
Issue Size (Rs. Cr)  462.00 Cr (at upper end)
Price Band Rs.263 – 270
Bid Lot 55 Equity Shares and multiple thereof
Issue Structure :  
QIB 50% of the offer- 8,555,556 Shares- 231  crore
NIB 15% of the offer- 2,566,667 Shares- 69.30 Crore
Retail 35% of the offer- 5,988,889 Shares- 161.70 Cr
BRLMs SBI Capital Markets, HDFC Bank
Registrar Link Intime India Pvt. Ltd.
About HG Infra Engineering Limited
  • HG Infra Engineering Limited is an infrastructure construction, development and management company with a focus on providing engineering, procurement and construction (“EPC”) service for road projects, including highways, bridges and flyovers.
  • HG Infra Engineering Limited is largely present in road sector.  Its revenue from execution of projects in the roads and highways sector constituted  approximately 86.00% of its revenue for the six months ended September 30, 2017. 96% of company’s order book is from  the roads and highways sector 
  • The company’s orders span states like  Rajasthan, Uttar Pradesh Haryana, Uttarakhand, Maharashtra and Arunachal Pradesh.
  • As on November 30, 2017, HG Infra Engineering had 2,447 permanent employees, of which 310 were engineers, 88 held a degree in master’s in business administration and 182 were managers. HG Infra Engineering also employed 14 chartered accountants/ cost and works accountant and two company secretaries. Additionally, it owns a large fleet of sophisticated and modern construction equipment.

HG Infra Engineering Limited : Financials: 
(Rs. In Cr)
  HY2018 2017 2016 2015 2014
Revenue from Operations 567.34 1,054.89 740.88 365.08 471.05
Revenue Growth (%) 42.38% 102.94% -22.50%  
Profit Before Tax 45.1 78.99 46.2 13.51 25.79
Net Profit as Restated 29.28 53.33 35.35 4.64 17.17
Net Profit Margin 5.16% 5.06% 4.77% 1.27% 3.65%
Share Capital 54.06 18.02 18.02 15.25  
Reserves 151.11 157.87 104.53 69.18  
Net worth 205.17 175.89 122.55 84.43  
Long Term Borrowings 113.01 63.48 28.45 15.5  
Short Term Borrowings 142.82 93.29 58.99 37.79  
EPS (Rs.) 5.42 9.87 7.64 1.01  
RONW(%) 14.27% 30.32% 28.84% 5.49%  
Net Asset Value (Rs.) 37.95 32.54 26.49 18.32  
EPS (Rs.)# 21.2 41.27 28.97 19.03  
IPO Price 270
Face Value 10
Price/Book Value 6.54
Post Issue Equity 65.17
EPS (Post IPO) 8.18
PE (post IPO) fy17 32.99
CAGR Sales 3 Yrs 30.83%
CAGR Net Profit 3 Yrs 45.90%
Market Cap 1759.59 crore
Market cap / Sales 1.67
Objectives of HG Infra Engineering  IPO

 Repayment/pre-payment, in full or in part, of certain borrowings availed by
the company ( Rs. 115cr)
 Purchasing capital equipment – Rs. 90 crore
 General corporate purpose

HG Infra Engineering: Rationale for Investment
  • As on  November 30, 2017, HG Infra Engineering Order Book stood at  ₹ 3,707 crore with roads and highways  accounting for 96.70% of its total Order Book.
  • This order book corresponded to 21 projects in the roads and highways sector, four civil construction projects and two water supply projects.
  • HG Infra Engineering is  pre-qualified to bid independently on an annual basis for bids by NHAI and MoRTH for contract values of up to ₹ 8,066 million.
  • Company has become an established construction developer in the roads and highways sector with strong execution capabilities and with a reputation of delivering quality projects.
  • It received a letter of appreciation in the year 2012 from Larsen and Toubro Limited for being the most quality consciousness sub-contractor.
  • HG Infra Engineering  got bonus for early completion of widening and strengthening of NH-96 Faizabad-Allahabad Road.
  • 68% of its  order book comprised of orders received from state-run/govt  clients like NHAI, PWD, Highway Authority of India,  Military Engineering Services and Jaipur Development Authority and 32% orders are from private players
  • HG Infra Engineering is registered as grade ‘AA’ Class contractor with PWD, Rajasthan & ‘SS’ Category with Military Engineering Services (MES).
  • HG Infra Engineering has a fleet of modern construction equipment and employed manpower to supplement the growth of its construction business. As on November 30, 2017, its equipment base comprised of 1,064 construction equipment.
Risks & Concerns:
  • HG Infra Engineering  business is relatively concentrated in Maharashtra and Rajasthan and any adverse development in these regions may adversely affect its business, results of operations and financial condition.
  • A significant part of its business transactions are with governmental or government-funded entities.
  • For large orders company has to enter into JV with other companies.
Peer Comparison:
Peer Group Comparison (Rs. in Crore)
Particulars/ Company  KNR PNC Infra Dilip Buildcon HG Infra 
Net Sales 1,679.59 2,252.33 5,319.16 1,054.89
PBDIT 296.92 664.67 1,172.20 123.86
PAT 114.9 118.28 357.68 53.33
Equity 28.12 51.31 136.77 65.17
Networth 813.93 1,461.03 1,718.98 175.89
NAV 62.48 284.76 125.69 37.95
Market /IPO Price 303.05 164.5 953.25 270
Face Value 2 2 10 10
EPS 8.17 4.61 26.15 8.18
Price / Earning 37.08 35.68 36.45 32.99
Price / BV 4.85 0.58 7.58 7.11
PBBIT/Revenue % 17.68% 29.51% 22.04% 11.74%
NPM % 6.84% 5.25% 6.72% 5.06%
RONW % 14.12% 8.10% 20.81% 30.32%
Market Cap 4261 4220 13038 1760
Market Cap/Sales 2.54 1.87 2.45 1.67

While HG Infra Engineering is being offered at a little discount to other established players, players like KNR and Dilip Buildcon have repeatedly proven their mettle whereas HG Infra Engineering has limited track record.

HG Infra Engineering IPO: Assessment
  • Between Fiscal 2018 and Fiscal 2022, CRISIL Research expects an investment of ₹ 4.30 trillion in national highways, up 2.9 times in the next five years  compared with the past five years. Notably, the government will account for more than half of the investment
  • HG Infra Engineering is an established roads and highways sector focused construction developer with growing Order Book which shall  improve its pre-qualification credentials.
  • Company’s has shown good growth rates for last three years with CAGR of 31% ib revenues and CAGR of 46% in PAT.
  • At present company’s debt is high, but this will come down as company intends to pay Rs. 115 crore from the issue towards debt.
  • Caution is warranted as mid-caps in general are under considerable pressure. and peers like Dilip Buildcon and KNR  are well known names wheres HG Infra Engineering has limited track record.
  • The HG Infra Engineering IPO appears to be fully priced and listing gains depend entirely on market conditions. Company cannot be compared to established players like Dilip Buildcon & KNR construction due to limited track record and presence concentrated  in two states. I am at this point of time, neutral on the issue and shall apply of good interest is seen to the IPO. Shall update the same here. 
  • 28-02-18: Finally made 2 applications in HG Infra Engineering IPO at the last moment as QIB response picked up. 
  • While HG Infra Engineering is could show some improvements in earning going forward due to debt reduction and also  second half being better than first half for this sector, overall market conditions at this juncture are bit lackluster and  so gains are not assured. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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