HG Infra Engineering IPO recommendations: Neutral to positive


HG Infra Engineering IPO opens on 26 February and it will be interesting to see how the offer navigates the choppy waters and mixed sentiments. Nevertheless, analysts at broking houses have identified a few positives in the company’s business model. Here is a snapshot of HG Infra Engineering IPO recommendations:

ICICIdirect has a positive view on the IPO and has cited the company’s strong execution track record so far. “At IPO price band of | 263-270, stock is available at 23.9-24.6x FY18E rough cut EPS. Its strong execution capabilities along with healthy orderbook & strong opportunities ahead lends us comfort over robust execution, going forward. Hence, we recommend SUBSCRIBE on issue,” said the brokerage house in its IPO note.

Similar views were echoed by Choice Broking which also has a Subscribe rating on the IPO. “On valuation front, at higher price band, the company is demanding a P/E valuation of 33x (to its restated FY17 EPS of Rs. 8.2) as compared to peer average of 33.8x. Though the issue seems to be fairly priced with respect to FY17 earnings, it look attractive considering the FY18E and FY19E earnings. (The company is asking a P/E multiple of 19.6x and 12.7x, respectively, for FY18E and FY19E, as compared to peer average of 21.5x and 18.4x). On other valuation metric front too, the company is demanding a discounted valuation with respect to FY18E and FY19E financials. Thus considering the above observations, we assign a “SUBSCRIBE” rating for the issue,” noted the research note.

Read Also: HG Infra Engineering IPO opens on 26 Feb, here is what you should know

Emkay Global Financial Services also has a positive view on the IPO. “HG Infra is well positioned to gain traction in the Infrastructure sector on the back of: a) Impressive execution track record, b) Comfortable balance sheet with healthy return ratios and c) Healthy order book-to-sales ratio. In our view, given the strong order inflows in FY16-17, the company is expected to grow at a CAGR of 30%/38% over FY17-FY20 in Revenue/PAT. On the back of these catalysts, the stock would trade at P/E of 17.5x/12.5x FY19/FY20E earnings based on the upper end of the price band vs its peers, which are trading at 21x/18x FY19/FY20E earnings. We therefore recommend a “SUBSCRIBE” rating on the IPO,” said the firm’s research note.

While HG Infra Engineering IPO recommendations are mostly positive, Angel Broking has a neutral view on it and has cited high dependency on a few states as an area of concern. “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,” said Angel Broking in its IPO note.

Another positive word came from Canara Bank Securities which noted that the IPO’s valuation is fair. “H.G. Infra Engineering Ltd has an EPS 9.87, FY 2017 and at the upper end of the price band the company would trade at 27.35x FY17 earnings. We believe that the stock is fairly valued. One may subscribe to the IPO for long term gains,” opined the firm in its research note.

Included in the list of brokerage houses with positive HG Infra Engineering IPO recommendations is Indsec Securities. “At the upper end of the price band of Rs.270 the stock is currently valued at 32.9x FY17 and 30.1x FY18E (H1FY18 EPS annualized) earnings. Since, the scope of H.G. Infra’s operations is EPC works only, we have taken standalone numbers for peers like KNR Construction, Dilip Buildcon, PNC Infratech, Ashoka Buildcon, Sadbhav Engineering etc., as their consolidated numbers would involve BOT/ HAM operations as well. Thus, the valuations for HG seem to be in line with the stated peer group which trades at an average of ~33x (FY17). While the margins for HG seem to be lower than players like KNR, Dilip, etc. their return ratios are the best in the group (ROE-30.3%; ROCE-28.4% – FY17) and are expected to further improve post the repayment of debt from the proceeds. We believe the offer price captures most of the short to medium term potential, although the long term prospects remain promising and hence we have assigned a SUBSCRIBE rating on the issue from a long-term investment horizon,” noted the equity research house.

Motilal Oswal Securities also has a favorable view on the upcoming IPO. “HGIEL is a strong EPC player in the road sector with an excellent track record. It’s strength lies in a) large fleet of in house equipment so as to ensure timely execution of projects, b) one of the leanest working capital profile in the industry of 35 days vs. industry average of ~100 days; c) one of the highest return ratios in the construction space d) superior balance sheet with D/E ratio 0.3x post issue. At the higher end of price band, the issue is valued at 33x FY17 EPS (post dilution), which appears attractively priced considering the above factors. Hence we recommend SUBSCRIBE for long term investment,” said the brokerage house.

We will add more HG Infra Engineering IPO recommendations in the coming days. Meanwhile, feel free to visit this page to see what fellow investors think about the company and the IPO.


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