Shares of infrastructure development firm HG Infra Engineering jumped over 5 per cent to ₹1,532 on December 11, 2024, after the company announced a massive new order win. The company received a letter of acceptance (LoA) from the Ministry of Road Transport and Highways (MoRTH) for a project that can fetch revenues of ₹763 crore. The upgrading of the NH-227B Bahuvan Madar Majha to the Jagarnathpur stretch in Uttar Pradesh is likely to be a landmark project for the company. Let’s get into the nitty-gritty of this win, HG Infra’s financial performance, and what investors can expect going forward.
HG Infra Engineering: Rapid Growth Trajectory
HG Infra Engineering has been a key player in the space of infrastructure, mainly in road construction and development. The company is known for its expertise in projects related to civil engineering and infrastructure. Various construction projects, including roads, highways, and bridges, all the way through to energy storage systems, contribute to the company’s portfolio. This has enabled it to attract high-value government tenders and solidified its position in the Indian infrastructure sector.
The company has shown resilience in the face of different challenges, including a slowdown in the economy and the global supply chain crisis. Despite its profits falling in the last quarter, the stock price has been on an upward trajectory due to new contract wins and growth in its order book.
The New Order Win: A Game-Changer for HG Infra
On December 11, 2024, HG Infra announced that it had received a letter of acceptance from MoRTH for a project involving upgrading an important 63.84-km stretch of NH-227B. The stretch is part of the 84 Kosi Parikrama Marg, a famous pilgrimage route in Uttar Pradesh. The project will be of great value for the sheer scale, as well as because it reflects the government’s goal of improving the region’s transportation infrastructure, enhancing accessibility, and therefore economic activity.
The total value of the project awarded to HG Infra is ₹763.11 crore, lower than MoRTH’s estimated project cost of ₹898.5 crore. However, the company’s offer to execute the project at a low cost while not compromising on the quality aspect marks it as competitive in the market. The project will be undertaken through HAM funding, a combination of government contribution and private sector investment.
Key Features of the Project
It covers the package dubbed HAM that upgrades stretch Design Km 160.200 – Km 224.040; thus, it builds on two-lane paved shoulders intended to ensure easier flow and better reduction in traffic congestion, promoting greater safety along this road corridor among commuters. Its eventual realization should propel further development for locals and pilgrims who go by this stretch.
The project completion timeline is set at two years, and HG Infra has promised to deliver the project on time with quality. The company’s experience in similar projects and its established reputation in the infrastructure sector suggest that it will execute this project efficiently and within the stipulated timeframe.
A) Second Major Win in Less Than a Month
The LoA for the NH-227B project is not the company’s first major win in recent weeks. Just a few weeks prior, HG Infra had won another major contract from NTPC Vidyut Vyapar Nigam, worth around ₹1,110 crore. This involves the procurement and installation of 500 MW/1000 MWh standalone BESS across India.
This second major win underlines the fact that HG Infra is diversified enough to enter into new sectors like renewable energy and energy storage systems. The BESS project falls in line with the Indian government’s thrust on renewable energy and energy storage as key enablers of the energy transition. Diversification could help the company mitigate the risks associated with its reliance on the road construction sector and open up new avenues for growth.
B) HG Infra’s Financial Performance
While the order win is expected to boost optimism, HG Infra’s net profit for the second quarter of FY25 declined. The company’s net profit dropped 16% year-on-year to ₹80.7 crore from ₹96.1 crore in the same quarter last year. Revenue from operations also dipped 5.5% year-on-year to ₹902.4 crore from ₹954.5 crore in Q2 FY24.
The company’s operating performance has been relatively resilient, however. EBITDA margin improved slightly to 24.3% compared with 23% from the previous year, which shows that HG Infra is controlling its operating cost well. The ability of the company to manage and still maintain margin when revenue dropped showed efficient cost control and improvement in operational efficiency.
C) Stock Performance and Market Sentiment
The news of a new order win by HG Infra brought its share prices soaring 5% in the market as it closed at ₹1,532. The HG stock has witnessed a spectacular rally and is up 72% from the start of the year. This order win has seen investor confidence being pumped in and taking the stock to its all-time high.
The stock is doing well for HG Infra, despite some short-term setbacks in terms of profitability. This seems to be driven by positive sentiment regarding the long-term prospects of the company, with growth being fueled by its order book and increasing demand for infrastructure development in India. Large-scale government contracts, such as NH-227B, help maintain the company’s position in the market.
Outlook for HG Infra
The future of HG Infra seems bright given its robust order book and the continued government focus on infrastructure development. The company’s winning large contracts in both road construction and energy storage sectors suggests that it is well-positioned for sustainable growth. However, challenges such as fluctuations in raw material prices, regulatory approvals, and project execution timelines may hamper the company’s performance.
Investors will need to track HG Infra’s execution of its new projects and cost management closely. Maintaining margins and improving profitability is essential for the company to sustain its growth momentum over the next few years.
Conclusion
HG Infra’s latest victory of winning a ₹763 crore project from MoRTH is a testament to the group’s expertise and competitiveness in the infrastructure sector. Although there are some minor short-term financial difficulties, the strong order book, diversified portfolio, and growing market share place the company in a very good position for long-term growth. As India continues to focus its attention on infrastructure development, HG Infra is likely to be a significant player, with new projects and contracts providing a reliable stream of revenue.
The stock’s performance, including a 72% rally in 2024, underscores investor confidence in HG Infra’s prospects. As the company continues to execute its projects and expand its portfolio, it will likely see further growth, making it an attractive investment for those looking to capitalize on India’s infrastructure boom.
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