The stock’s outperformance can be attributed to the company’s better than expected quarterly show and its plans to diversify the order book by undertaking non-road projects.
The company reported stellar numbers for the June 2024 quarter notwithstanding the slowdown in awarding of projects by the government amid general elections. Revenue grew by 18.4% to Rs 1,505 crore year-on-year compared with the analysts’ estimate of 6% growth. Net profit rose by 18% to Rs139 crore, faster than the expected growth of 10%. At a time when most construction companies were unable to meet the street’s estimates, the performance of HG Infra Engineering was commendable.
Besides this, analysts are also impressed by the company’s commentary during the post-earnings conference call about diversifying the order book from road projects. At present, the company has an order book of Rs 15,642 crore. Of this, 91% orders are from the government of India and the remaining from the private sector. The order book provides revenue visibility of at least three years. The company has guided for incremental orders worth Rs 10,000-Rs 12,000 crore for FY25. Over the next two-three years, it expects the non-road projects including water, railways and other sectors to constitute 35-40% of the order book.
On the valuation front, the company’s enterprise value (EV) is 10.1 times the FY26 expected EBITDA compared with the three-year average of 7.6. The premium is justified given its strong order book and superior execution. Analysts estimate 12% growth in the company’s FY26 earnings per share (EPS).
