H.G. Infra Engineering Ltd (HG Infra) has unveiled a mixed set of results for Q4FY25, wherein revenue has risen at a healthy rate, although margins have fallen short of expectations. The management has pointed out that the lower margins are primarily linked to certain provisions undertaken towards few projects. That being stated, the outlook suggests stability in the margin at ~15-16%. Additionally, execution is expected to maintain its robust momentum on the healthy order book position, with management projecting ~17-18% YoY revenue growth for FY26 and ~15% for FY27. Also, inflows are projected to remain elevated, on the expectations of conversion of strong project pipeline into orders, along with ongoing diversification efforts. However, the company’s borrowings have increased mainly due to rising working capital needs for new projects and solar-related initiatives. Nonetheless, it is anticipated that these borrowings to stabilize by FY26-end with project completions. The monetization of four HAM has been completed with most funds received, and discussions have begun for six incremental HAM assets nearing completion. Overall, the outlook is optimistic, and we maintain our BUY rating on the stock.
Q4FY25 performance marked by healthy revenue growth, although margins have weakened
Revenue from operation improved by 20.7% YoY and 30.8% QoQ to ~Rs19.7bn, primarily supported by improved execution on its healthy order book position. Key projects such as Ganga Expressway, Khammam-Devarapalle, Raipur-Visakhapatnam and solar-related jobs were instrumental in achieving this growth.
The gross margin has declined by 121 bps YoY and 293 bps QoQ, primarily due to considerable surge in raw material costs. This, along with increased other expenses (on certain provisions), holds the key for a reduction in the EBITDA margin to 14.6% (down 160 bps YoY and 198bps QoQ). Consequently, EBITDA has increased by 8.8% YoY and 15.1% QoQ.
On a net basis, the reported PAT increased by 32.8% YoY and 55.5% QoQ to Rs2.1bn, primarily driven by healthy operational performance, increased other income, and a reduced tax rate. Additionally, the company recorded an exceptional gain of Rs574mn arising from the monetization of a HAM asset. Adjusted for this exceptional item, the PAT experienced a growth of 5.9% YoY and 24.0% QoQ. However, the adjusted PAT could have been even higher if it were not for the sharp rise in interest expenses.
Outlook and Valuation: HG Infra is positioned favourably to achieve 15.1% revenue CAGR over FY25-27E, to be driven by continued execution momentum on its healthy existing order book position and expectations of improved inflows. Further, margins are projected to remain elevated, with our expectation at 15.5% in FY27. Consequently, EBITDA is expected to rise at a CAGR of 14.2%. Additionally, we foresee a 14.7% (adj.) PAT CAGR over FY25-27E, aided by managed depreciation and finance costs. At the CMP, the stock (excl. investments) is trading at 6.7x FY27E P/E. Based on a SOTP methodology, our target price is set at Rs1,872/share. We continue to recommend a BUY.
