Dharmic Bull

New Portfolio Entry: H.G Infra Engineering Limited

Buy Price: 860

Reasons for buying:

  1. Company is into EPC and maintenance of roads, flyovers, highways, and other infrastructure. Majority of company’s revenues comes from government contracts.
  2. Company has recently started bidding for railways, metro, solar and water related projects.
  3. Company has grown Sales and Profits at > 25% per annum for last 5 years proving strong contract winning and execution abilities.
  4. Company has a strong orderbook of over 12,000 crores thus guaranteeing revenue visibility.
  5. Company has a solid track record of over 20 years making it a trusted player.
  6. Available at less than 5-year median valuation of 10.7 PE.
  7. Promoters have high skin in the game with stake close to 75%.
  8. Company’s sales come primarily from NHAI and MoRTH. Till the time Nitin Gadkari is at the helm, infrastructure projects will be executed on time with timely payments and minimum acquisition issues.
  9. Several reputed institutions hold stake in the firm – HSBC, Nippon, Abbakus etc.

Risks:

  1. Like rest of the EPC industry, company has high levels of debt and poor cashflows. We need to monitor whether debt levels become uncomfortable or remain manageable.
  2. Company’s success in winning and executing non-road contracts is unknown/untested.
  3. High customer concentration. Company’s sales from private road developers like Adani is miniscule.

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