In the aftermath of Covid-19, the government stepped up spending massively on infrastructure projects, especially relating to highways, railways and power among a few other areas. And listed companies in the space gained strongly from the Centre’s thrust on these segments.
Among those players, key highway construction player HG Infra Engineering executed key projects and experienced a strong push in its financials. The company also operates in the railways and solar segments.
However, in FY24 and more so in FY25, there has been a slowdown in infrastructure spends from the government as elections and formation of a new coalition took time. The Centre also spent less than the planned amount for infrastructure in FY25 to the tune of ₹10.18 lakh crore rather than the ₹11.11 lakh crore budgeted earlier. However, the government has announced a ₹11.21-lakh crore plan for infrastructure spend in the recent Budget.
Along with the general slowdown in the economy, contract awards and the stiff correction in the markets, the shares of many road players have fallen heavily.
The stock of HG Infra has fallen nearly 47 per cent from its peak made in the middle of last year.
At ₹970, the stock trades at just 10 times its per share earnings estimated for FY26, which is lower than many large road construction/infrastructure players that trade at 13-14 times forward earnings.
Investors with a two-three-year perspective can consider buying the stock at current levels and also accumulate further on any declines linked to the broader market volatility.
A healthy order book, an increasingly well-diversified client base outside highway construction and a robust execution record are positives for the company. The firm is also looking to gradually expand its private sector customer base to reduce excessive dependence on government orders.
From FY21 to FY24, HG Infra’s revenues grew at a CAGR of 26.4 per cent to ₹5,121.7 crore, while net profits expanded at a rate of 37.3 per cent in the same three-year period to ₹545.5 crore in FY24.
In 9MFY25, the company’s revenues increased 17 per cent year on year to ₹4,079 crore, while net profits fell 5.4 per cent to ₹364.7 crore. The fall in profits was a result of Q3FY24 having an exceptional item (₹106 crore) related to sale of SPVs (special purpose vehicles).
Driving on multiple engines
As mentioned earlier, HG Infra Engineering operates in the highway construction, railways and solar spaces.
As of December 2024, the company had an order book worth ₹15,080 crore. This translates to nearly 3x its FY24 revenues, thus giving considerable visibility for the next few visibilities.
Highways constitute 75 per cent of HG Infra’s order book, while Railways and Solar Projects account for 15 per cent and 10 per cent, respectively. The order book is, therefore, fairly well-diversified.
Although Maharashtra is a key State where the company operates in terms of order book, it has presence in 12 other States.
Its client base has entities and companies such as the NHAI, MoRTH, MSRDC, RVNL, DMRC, Adani Group among a few others.
One key aspect to note in HG Infra’s order-wins is the focus on EPC (Engineering Procurement and Construction). EPC projects constitute 67 per cent of the overall order book.
Essentially a fixed-rate contract, the EPC model has been a sought-after mode of bidding for large- and mid-sized highway players alike, given that there are no toll, traffic or annuity risks for the companies executing these projects. Costs are known upfront and bidding is done accordingly – usually aggressively.
HAM (hybrid annuity model) projects account for 33 per cent of its overall order book. In HAM contracts, the government takes up 40 per cent of project cost, while the developer bears the rest of the expenses. Then the government pays an annuity amount over the period of concession agreed upon. Although HAM contracts took off well when introduced over seven years ago, land acquisition delays and escalating costs meant that many players preferred EPC projects instead.
HG Infra derives 94 per cent of its order book from government/government companies/department, while the remaining comes from the private sector. The proportion of private companies in the order book is expected to go up in the coming years.
Sound balance sheet
HG Infra’s debt-equity position is quite comfortable. It was around 0.19 in FY24 and has risen mildly to 0.3 by 9MFY25, but is expected to go down by the end of the fiscal again to earlier levels. When net debt to equity is taken, the ratios are even lower. The company’s EBITDA margin, which has consistently been north of 16 per cent, is among the best in the industry, with cashflows being steady. A healthy interest coverage ratio and also having tied up financing for its key projects, the company’s numbers could light up in the next couple of years.
