HG Infra Engineering IPO – Should you Subscribe?

HG Infra Engineering IPO Review - Should you investHG Infra Engineering IPO – Should you Subscribe?


Jaipur based HG Infra Engineering IPO would open for subscription on 26th February, 2018. HG Infra Engineering is one of the leading infrastructure construction, development and management company in India. Its consolidated revenues grew at 30% CAGR in the last 4 years. It generated consolidated margins of around 5% in FY17. Due to increased spending by Govt of India for Infra Structure sector, Infra companies are expected to gain. What are the positive factors in HG Infra Engineering Ltd IPO? What are some of the hidden factors in HG Infra Engineering IPO? Should you invest in HG Infra Engineering IPO?

Also Read: Best Largecap Mutual Funds to invest in 2018

About HG Infra Engineering Ltd


They are an infrastructure construction, development and management company with extensive experience in company focus area of road projects, including highways, bridges and flyovers. company main business operations include

(i) providing engineering, procurement and construction services on a fixed-sum turnkey basis and

(ii) undertaking civil construction and related infrastructure projects on item rate and lump sum basis, primarily in the roads and highway sector. They have also forayed into executing water pipeline projects and are currently undertaking two water supply projects in Rajasthan on turnkey basis which includes the designing, construction, operation and maintenance of the project.

HG Infra Engineering IPO Issue details


IPO opening date: 26-February-2018

IPO closure date: 28-February-2018

Face Value: Rs 10 per share

Issue price band: Rs 263 to Rs 270 per share.

Issue size: Approx Rs  457.7 Crores on higher price band

IPO Lot size: 55 shares and 55 shares there-off

Minimum investment: Rs 14,850

Leading Managers: SBI Capital Markets and HDFC Bank

Listing: BSE / NSE

Download HG Infra Engineering IPO RHP Prospectus at this link.

Objects of the HG Infra Engineering Ltd IPO issue


Below are the objects of this IPO.

1) Offer for Sale: The Promoter Selling Shareholders propose to sell Equity Shares held by them. Company will not receive any proceeds from the Offer for Sale.

2) Purchasing capital equipment;

3) Repayment/ prepayment in part or in full, of certain indebtedness; and

4) General corporate purposes.

Company Promoters:

The Promoters of the Company are Mr. Harendra Singh, Mr Vijendra Singh and Mr Girish Pal Singh.

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 472.9 Crores for the year ended Mar-14 and Rs 1,058.5 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 10.8 Crores for the year ended Mar-14 and profit of Rs 53.3 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 9.87 and 3 years average EPS is Rs 7.65.

HG Infra Engineering IPO - Cons Financial Summary

Company Financials (reinstated-standalone)


1) The company generated revenue of Rs 325.4 Crores for the year ended Mar-13 and Rs 973.9 Crores for the year ended Mar-17. 

2) The company posted a profit of Rs 15.1 Crores for the year ended Mar-13 and profit of Rs 53.3 Crores for the year ended Mar-17.

3) Its FY17 EPS is Rs 9.87 and 3 years average EPS is Rs 7.65.

HG Infra Engineering IPO - Standalone Financial Summary

What are the key strengths of HG Infra Engineering Limited?


Here are the key strengths of the company.

1) Established roads and highways sector focused construction developer.

2) Efficient business modelStrong project management and execution capabilities.

3) Visible growth through company growing Order Book and improved pre-qualification credentials

4) Experienced management team.

What are the Strategies of HG Infra Engineering Ltd?


Here are the key strategies of the company.

1) Continue focusing on company EPC business in the roads and highways sector and enhancing execution efficiency.

2) Selectively expand company geographical footprint.

3) Selectively explore hybrid annuity based model to optimize company project portfolio.

4) Diversify beyond projects in the roads and highways sector by leveraging existing capabilities.

Reasons to invest in HG Infra Engineering IPO


1) It posted consolidated revenue growth of over 30% in the last 5 years. Companies with consistent and high growth over a period of time can be multibagger stocks.

2) It posted consistent margins in the last 3 years (average of around 5%). Such consistent margins provide good visibility of company profits in future and they can reward shareholders and investors.

3) With Govt of India focus on Infrastructure development, Infra companies like HF Infra would get benefitted. 

Risk Factors / Reasons not to invest in a HG Infra Engineering IPO


1) Company revenue from execution of projects in the roads and highways sector constituted approximately 86.00%, 86.02%, 89.57%, 85.95% and 92.89% of company total revenue for the six months ended September 30, 2017 and for the years ended March 31, 2017, 2016, 2015 and 2014, respectively and 95.34% of company standalone revenue in Fiscal 2013. Company business and company financial condition would be materially and adversely affected if they fail to obtain new contracts.

2) Delays in the completion of construction of current and future projects could lead to termination of EPC contracts or cost overruns or claims for damages, which could have an adverse effect on company cash flows, business, results of operations and financial condition.

3) There are certain outstanding litigation involving company, which, if determined adversely, may affect company business and operations and company reputation.

4) As of November 30, 2017, company ongoing projects in Maharashtra, Rajasthan, Arunachal Pradesh, Haryana, Uttar Pradesh and Uttarakhand, constitute 51.13%, 44.59%,  1.51%, 0.55%, 1.19% and 1.03%, respectively, of company Order Book. company business is relatively concentrated in northern and western part of India and any adverse development in these regions may adversely affect company business, results of operations and financial condition.

5) They are required to furnish financial and performance bank guarantees as part of company business. company inability to arrange such guarantees or the invocation of such guarantees may adversely affect company cash flows and financial condition.

6) Company ability to complete company projects in a timely manner and operate, maintain and expand company roads and highway projects, is subject to performance of company contractors.

7) Construction faults may arise in company projects, which may result in delays in completion and revision in estimated costs, thereby affecting company business and results of operations.

8) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).

Also read: Top Sector Mutual Funds that can double your money quickly

Recommendation / Investment strategy – HG Infra Engineering IPO


1) On the upper price band of Rs 270 and on consolidated restated FY17 EPS of Rs 9.87, P/E ratio works out to 27x. Even based on last 3 years restated consolidated EPS of Rs 7.65, P/E ratio works out to 35x. Means, company is asking higher price band of Rs 270 in the P/E ratio of 27x to 35x. There are listed peers like PNC Infra which is trading at P/E of 41x and Ashoka Buildcon at P/E of 23x, hence HG Infra Engineering share price is reasonably priced.

2) Company consolidated revenues grew at 30% CAGR in the last 4 years. It is earning consistent profits. Its issue price is also reasonably priced compared to the listed peers. Investors with 2-3 years time horizon can invest in this IPO. One may or may not get listing gains in this IPO.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, what is your view on this IPO? Do you feel one would get listing gains?

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Suresh

HG Infra Engineering IPO – Should you Subscribe

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