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Please refer to important disclosures at the end of this report
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Started in 2003, HG Infra Engineering (HGIEL), based in Jodhpur, has evolved as
a major player in the road construction sector and has a major foothold in
Rajasthan, Uttar Pradesh and Maharashtra. HGIEL is pre-qualified to bid
independently on an annual basis for bids by NHAI and MoRTH. During the last
five years, it has completed 13 projects above the contract value of ` 40 cr in the
roads and highways sector. Since 2013, the company also expanded its portfolio
to sub-contracting of water supply projects.
Pros:
Strong order book: The company has a strong order book of ` 3708 cr, which
grew significantly from `1,068 cr in FY2015. Government contributes 67.7% and
private sector forms 32.2% of the order book. Road and highways form 95% of
the order book.
Favorable industry trends: HGIEL is in a sweet spot, as investments in the road
construction industry is expected to double to `10,70,000 cr over the next five
years. Further, its pre-qualification to bid independently on an annual basis for
bids by NHAI and MoRTH of contract value up to `900 cr would help in
exploiting these opportunities.
Risks and concerns :
1)Delays in execution of projects, 2) Inability to win new orders, 3) Rise in raw
material and labour cost, 4) >95% order book concentration in 2 states and 5)
limited execution record
Outlook & Valuation: At the upper end of the price band, the P/E multiple works
out to be 27x (pre issue equity base) and 33x ( post issue equity base) its FY17
EPS. This post issue valuations is largely in line with industry average valuations
and 10-30% discount from valuation of industry leaders like Dilip Buildcon and
KNR construction. However, in view of the limited track record ( the company has
grown enormously only in the last 2-3 years) and concentrated order book ( over
95% of order book concentrated in 2 states), we would like to see more consistent
performance from the company in future. Hence, we recommend ‘Neutral’ on the
issue
Key Financial
FY14
FY15
FY16
FY17
471
365
741
1,055
-
-22
103
42
11
5
35
53
-
-58
661
51
10.8
12.0
10.5
11.4
2.0
0.9
6.5
9.9
132.1
314.0
41.2
27.3
18.3
17.3
11.9
8.3
13.8
5.5
28.8
30.3
26.5
19.5
28.5
28.4
35.7
41.1
23.6
15.8
3.9
4.9
2.5
1.8
Source: RHP, Angel Research; Note: *Ratios based on pre-issue outstanding shares and at upper end of the price
band
Neutral
Issue Open: February 26, 2018
Issue Close: February 28, 2018
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters
74%
Others
26%
Fresh issue: *1.1cr shares
Issue Details
Face Value: `10
Present Eq. Paid up Capital: `54cr
Offer for Sale: 0.6cr shares
Post-Issue Shareholding Pattern
Post Eq. Paid up Capital: `65cr
Issue size (amount): `458-462 cr
Price Band: `263-270
Lot Size: 55 shares
Post-issue implied mkt. cap: `1720-1758
cr
Promoters holding Pre-Issue: 100%
Promoters holding Post-Issue: 74%
* Calculated on upper price band
Book Building
Nidhi Agrawal
+022 39357600, Extn: 6872
[email protected]
HG Infra Engineering
IPO Note | Road Infra
February 22, 2018
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February 22, 2018
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Company background
The company was incorporated as “H.G. Infra Engineering Private Limited” on
January 21, 2003. In 2008, it executed its first subcontract work of construction of
embankment and commenced construction of a portion of the Yamuna
Expressway. HGIEL is pre-qualified to bid independently on an annual basis for
bids by NHAI and MoRTH. Since 2013, the company expanded its portfolio to sub-
contracting of water supply projects. Over the years, it has gradually added a fleet
of modern construction equipment and employed manpower to supplement the
growth of our construction business. As on November 30, 2017, its equipment
base comprised of 1,064 construction equipment.
Company timeline
Year
Details
2003
Incorporation of Company
2008
Executed its first subcontract work of construction of embankment
Commenced construction of a portion of the Yamuna Expressway
2010
Commenced its first major project as a subcontractor to carry out work of
four laning in Jaipur
Commenced work on a part of the road development project on the Ajmer
bypass for `56 cr
2011
Commenced work on the project of four laning of the Warora Bamni
section in Maharashtra
2014
Executed construction of the Jaipur - Nagaur road
2015
Awarded construction project of four laning highway of National Highway
65, on the Kaithal- Rajasthan border for a cost of `401cr
2016
Executed second renewal coat on the pavement of six lane Jaipur –
Kishangarh section of NH8
2017
Conversion of our Company into a public limited company
Awarded seven construction projects in Maharashtra worth `1904 cr by MoRTH
Awarded two construction projects by NHAI worth ` 414 cr
Source: Company, Angel Research
Issue Details
This IPO is a mix of OFS and issue of fresh shares. Issue would constitute fresh
issue worth of `300cr and OFS worth of 0.6 cr. OFS is being offered by two of its
promoters.
Exhibit 1: Pre and post-IPO shareholding pattern
No of shares (Pre-issue)
%
No of shares (Post-issue)
%
Promoter
5,40,60,000
100%
4,80,60,000
76%
Public
1,71,11,111
24%
Total
5,40,60,000
100%
6,51,71,111
100%
Source: RHP, Angel Research; Note: Calculated on upper price band* Pre IPO investors
Objects of the offer
Repayment/pre-payment, in full or in part, of certain borrowings availed by
the company (`115cr)
Purchasing capital equipment worth `90 crore
General corporate purpose
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Exhibit 2: Current order book details
Rs crore
Client
No. of Contracts
Contract Value
Order
Book
% of Total
Order Book
1) Private clients
5
1758
1197
32
(2) Government clients
22
3403
2511
68
NHAI
5
1045
299
8
MoRTH
7
1905
1896
51
State PWDs
5
264
194
5
Total
27
5161
3708
100
Rs crore
State
No. of Contracts
Contract Value
Order
Book
% of Total
Order Book
Rajasthan
16
2,498
1,653
44.6
Uttar Pradesh
1
127
44
1.2
Haryana
1
401
20
0.6
Uttarakhand
1
243
38
1.0
Maharashtra
7
1,905
1,896
51.1
Arunachal Pradesh
1
100
56
1.5
Total
27
5161
3708
100
Source: RHP, Angel Research
Key Management Personnel
Mr. Harendra Singh is the Chairman and Managing Director of the Company. He
holds a bachelor’s degree in engineering (civil) from Jodhpur University. He has
been on the Board since the incorporation of the Company, and was reappointed
for a period of five years with effect from May 15, 2017. He has 23 years of
experience in the construction industry.
Mr. Vijendra Singh is a Whole-time Director of the Company. He has basic
education. He has been on the Board since the incorporation of the Company,
and was reappointed for a period of five years with effect from May 15, 2017. He
has 23 years of experience in the construction industry. He is responsible for the
overall functioning of our Company.
Mr. Girish Pal Singh is a Non-Executive Director of the Company. He has basic
education. He has been on the Board since the incorporation of our Company. His
designation was changed from an executive director to a Non-Executive Director
pursuant to a resolution passed by its Board dated May 10, 2017. He has 23 years
of experience in the construction industry
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Outlook & Valuation
At the upper end of the price band, the P/E multiple works out be 27x (pre issue
equity base) and 33x ( post issue equity base) its FY17 EPS. This post issue
valuations is largely in line with industry average valuations and 10-30% discount
from valuation of industry leaders like Dilip Buildcon and KNR construction.
However, in view of the limited track record ( the company has grown enormously
only in the last 2-3 years) and concentrated order book ( over 95% of order book
concentrated in 2 states), we would like to see more consistent performance from
the company in future. Hence, we recommend ‘Neutral’ on the issue.
Exhibit 3: Comparison with peers
H.G. Infra
Dilip
Buildcon
KNR
Constructions
J Kumar
Infraprojects
Sadbhav
Engineering
Ashoka
Buildcon
PNC
Infratech
Revenue (`cr)
1055
5,319
1,680
1,573
4,570
2,982
2,252
CMP (`)
270
929
297
329
395
219
167
Face value(`)
10
2
2
5
1
5
2
EPS (`)
9.9
27.6
8.2
13.95
-3.15
-0.53
4.62
PE (x)
27.3
33.7
36.4
23.6
-
-
36.1
Return on net worth (%)
30.3%
20.8%
11.2%
7.6%
13.7%
-5.9%
8.1%
Source: RHP
Key risks
1. Delays in execution of projects
2. Inability to win new orders
3. Rise in raw material cost and labor cost
4. Increase in competitive intensity
5. Limited execution record
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Consolidated Income Statement
Y/E March (` cr)
FY14
FY15
FY16
FY17
Total operating income
471.0
365.1
740.9
1,054.9
% chg
-22.5
102.9
42.4
Total Expenditure
420.2
321.1
662.8
934.7
Raw Material
395.7
296.5
616.6
882.4
Personnel
21.3
20.7
30.0
41.7
Others Expenses
3.2
3.9
16.2
10.6
EBITDA
50.8
44.0
78.1
120.2
% chg
-13.5
77.7
53.8
(% of Net Sales)
10.8
12.0
10.5
11.4
Depreciation& Amortisation
13.4
17.1
18.3
25.6
EBIT
37.4
26.8
59.8
94.6
% chg
-28.4
123.0
58.2
(% of Net Sales)
7.9
7.3
8.1
9.0
Interest & other Charges
13.6
15.8
16.0
19.3
Other Income
1.9
2.5
2.4
3.7
(% of Sales)
0.4
0.7
0.3
0.3
Recurring PBT
25.8
13.5
46.2
79.0
% chg
-47.6
241.9
71.0
Tax
8.5
4.3
16.0
29.7
PAT (reported)
11.0
4.6
35.3
53.3
% chg
-57.9
661.4
50.9
(% of Net Sales)
2.3
1.3
4.8
5.1
Basic & Fully Diluted EPS (Rs)
2.0
0.9
6.5
9.9
% chg
-57.9
661.4
50.9
Source: RHP
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Consolidated Balance Sheet
Y/E March (` cr)
FY14
FY15
FY16
FY17
SOURCES OF FUNDS
Equity Share Capital
15.3
15.3
18.0
18.0
Reserves& Surplus
64.5
69.2
104.5
157.9
Shareholders’ Funds
79.8
84.4
122.6
175.9
Minority Interest
-
-
-
-
Total Loans
61.7
53.3
87.4
156.8
Other Liab & Prov
3.1
9.1
9.4
31.2
Total Liabilities
144.6
146.8
219.4
363.8
APPLICATION OF FUNDS
Net Block
85.8
83.6
121.0
205.1
Capital Work-in-Progress
-
-
-
-
Investments
-
-
-
-
Current Assets
114.4
128.9
250.0
339.1
Inventories
20.5
21.8
43.5
49.2
Sundry Debtors
29.0
42.1
92.7
112.8
Cash
3.0
4.7
4.4
17.0
Loans & Advances
30.6
29.3
68.4
99.2
Other Assets
31.3
31.0
41.0
60.9
Current liabilities
77.6
92.0
178.9
207.4
Net Current Assets
36.9
36.9
71.2
131.7
Other Non Current Asset
21.9
26.2
26.4
24.2
Total Assets
144.6
146.7
218.6
360.9
Source: RHP
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Consolidated Cash Flow Statement
Y/E March (`cr)
FY14
FY15
FY16
FY17
Profit before tax
17.0
9.1
51.3
83.3
Depreciation
13.4
17.1
18.3
25.6
Change in Working Capital
5.3
0.1
(39.1)
(38.8)
Interest / Dividend (Net)
(1.7)
(1.8)
(2.0)
(2.4)
Direct taxes paid
(9.0)
(7.0)
(15.2)
(24.5)
Others
(13.4)
(16.1)
(16.2)
(21.2)
Cash Flow from Operations
38.4
33.7
29.5
64.4
(Inc.)/ Dec. in Fixed Assets
(3.1)
(20.9)
(62.6)
(115.1)
(Inc.)/ Dec. in Investments
-
-
-
-
Cash Flow from Investing
(3.4)
(17.0)
(66.2)
(113.7)
Issue of Equity
-
2.8
Inc./(Dec.) in loans
(20.0)
0.9
49.6
80.9
Others
13.7
15.8
16.0
18.9
Cash Flow from Financing
(33.7)
(14.9)
36.3
62.0
Inc./(Dec.) in Cash
1.3
1.7
(0.4)
12.7
Opening Cash balances
1.7
3.0
4.7
4.4
Closing Cash balances
3.0
4.7
4.4
17.0
Source: RHP
Key Ratios
Y/E March
FY14
FY15
FY16
FY17
Valuation Ratio (x)
P/E (on FDEPS)
132.1
314.0
41.2
27.3
P/CEPS
59.7
66.9
27.2
18.5
P/BV
18.3
17.3
11.9
8.3
Dividend yield (%)
-
-
-
-
EV/Sales
3.9
4.9
2.5
1.8
EV/EBITDA
35.7
41.1
23.6
15.8
EV / Total Assets
12.6
12.3
8.4
5.2
Per Share Data (`)
EPS (Basic)
2.0
0.9
6.5
9.9
EPS (fully diluted)
2.0
0.9
6.5
9.9
Cash EPS
4.5
4.0
9.9
14.6
DPS
-
-
-
-
Book Value
15
16
23
33
Returns (%)
ROCE
26.5
19.5
28.5
28.4
Angel ROIC (Pre-tax)
-
-
28.4
27.3
ROE
13.8
5.5
28.8
30.3
Turnover ratios (x)
Asset Turnover (Gross Block)
4.0
2.7
4.7
5.6
Inventory / Sales (days)
16
22
21
17
Receivables (days)
22
42
46
39
Payables (days)
24
29
25
26
Working capital cycle (days)
15
35
42
30
Source: RHP, Angel Research
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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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