HG Infra Engineering has set the terms of its upcoming IPO. The public offer has been priced in the range of INR263 – 270 per share. The Jaipur-based infrastructure construction, development and management player is looking to launch its IPO on 26 February in what will be the sixth public offer this year. Here are some important points to consider before investing in HG Infra Engineering IPO:
HG Infra Engineering IPO: Pricing and key details
As mentioned above, investors can place their bids in HG Infra IPO in the range of INR263 – 270 per share. Investors can place their orders for minimum 55 shares and in multiples thereafter. The IPO is a mix of fresh issue and an Offer For Sale (OFS) by promoters, taking the total size to anywhere between INR457.8 crore and INR462 crore. The company aims to raise INR300 crore by issuing new shares which are proposed to be used towards purchasing capital equipment (INR90 crore) and repayment/ prepayment of debts (INR115.5 crore).
In addition, there will be an OFS of 6 million shares, amounting to INR157.8 – 162 crore. The OFS will be led by promoter group member Mr. Hodal Singh who plans to sell 3 million shares. Promoters Mr. Girish Pal Singh, Mr. Vijendra Singh, and Mr. Harendra Singh also plans to sell 1 million shares each. The average cost of acquisition for promoters is INR3.33 per share.
HG Infra Engineering IPO: Road and Highway construction
Incorporated in 2003, the company primarily operates in roads and highway sector and earns revenues by either offering EPC (engineering, procurement and construction) services on a fixed-sum turnkey basis or undertaking civil construction and related infrastructure projects on item rate and lump sum basis. Even though HG Infra’s primary focus is on highways, bridges and flyovers, it has lately forayed into civil construction and water pipeline projects.
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Impressive financial performance
Following a dip in 2015, the company has done a good job of growing revenues. From the levels of INR473 crore in FY2014, the company’s topline expanded to INR1,058.6 crore in FY2017. It has similarly made progress in expanding profits which increased from INR10.9 crore in FY2014 to INR53.3 crore in FY2017.
This growth in profits is not entirely from higher revenues and there is an element of operating leverage as well. This has taken profitability from 2.3% in FY2014 to 5% in FY2017.
In the six months of the current FY, the company is on track to exceed last year’s revenues, earnings and margin figures. As of 30 September 2017, the company’s consolidated Debt/Equity (D/E) ratio stood at 1.72.
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HG Infra’s consolidated financial performance (in INR crore) |
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| FY2014 | FY2015 | FY2016 | FY2017 | H1 FY2018 | ||
| Total revenues | 473.0 | 367.6 | 743.3 | 1,058.6 | 569.5 | |
| Total expenses | 447.2 | 354.1 | 697.1 | 979.6 | 524.4 | |
| Profit after tax | 10.9 | 4.6 | 35.4 | 53.3 | 29.3 | |
| Net margin (%) | 2.3 | 1.3 | 4.8 | 5.0 | 5.1 | |
High public-sector and geographical dependence
HG Infra Engineering’s predecessor partnership firm Hodal Singh Giriraj Singh & Company started off by doing business with public works department (PWD), railways, irrigation department and other government and semi-government departments.
This legacy has continued and the company’s exposure to public sector clients stood at 66.37% during the latest reporting period of six months ended 30 September 2017. These clients include NHAI, PWD, MES, Jaipur Development Authority and MORTH. The latter is the biggest client for the company and accounts for 51.13% of its order book as of 30 November 2017.
Similarly, the company has business operations in a number of states including Maharashtra, Rajasthan, Arunachal Pradesh, Haryana, Uttar Pradesh and Uttarakhand. However, it gets majority of its revenues from Maharashtra and Rajasthan with the two states accounting for 51.13% and 44.59% of top line, respectively, during the six months ended 30 September 2017. This is not surprising as the company started its business operations in Rajasthan and has gradually expanded in other regions.
HG Infra Engineering IPO: Strong order book
As mentioned above, the company has expanded in recent years and had 21 ongoing projects in the roads and highways sector as of 30 November 2017. HG Infra Engineering’s total order book stood at INR3,707.8 crore at the end of November 2017, consisting of the abovementioned projects, as well as four civil construction and two water supply projects. Like previous years, government contracts account for a vast majority of 67.71% in this order book and only 32.29% of the order book is coming from private contracts.
HG Infra Engineering IPO: Business valuation
In the year ended 31 March 2017, the company had Earnings Per Share (EPS) of INR9.87. Accordingly, the IPO price band values the business at Price/Earnings (P/E) ratio range of 26.64 to 27.35. Considering the company’s assertion of the business not being cyclical and annualizing the latest six month earnings, the price band translates into the P/E range of 24.26 to 24.9. On the Return on Net Worth (RONW) front, the company has a strong performance at 30.32% for the last full year.
Feel free to check out the HG Infra Engineering IPO discussion page to stay updated about the sentiments on the street and for the latest grey market rates.
