The stock’s outperformance is due to the company’s better-than-expected quarterly performance and its plans to diversify its backlog by taking on non-road projects.
The company reported excellent numbers for the June 2024 quarter despite the slowdown in government contract awarding in the wake of the general elections. Revenue grew 18.4% year-on-year to Rs 1,505 crore, compared to analyst estimate of 6% growth. Net profit rose 18% to Rs 139 crore, above the expected growth of 10%. At a time when most construction companies were failing to meet industry estimates, HG Infra Engineering’s performance was commendable.
Moreover, analysts are also impressed by the company’s comments during the post-earnings call regarding diversification of the backlog of road projects. Currently, the company has an order book of Rs 15,642 crore. Of this, 91% of the orders are from the Government of India and the rest from the private sector. The backlog provides revenue projections for at least three years. The company has forecast additional orders worth Rs 10,000 crore to Rs 12,000 crore in fiscal 2025. In the next two to three years, it expects non-road projects, including water, railway and other sectors, to account for 35-40% of the backlog.
In terms of valuation, the company’s enterprise value (EV) is 10.1 times its expected FY26 EBITDA, compared to the three-year average of 7.6. The premium is justified given the strong backlog and excellent execution. Analysts estimate that the company’s earnings per share (EPS) will grow 12% in FY26.
