Reblog: H G Infra Engineering Ltd. IPO Review

H G Infra Engineering Ltd. (HGIEL) is an infrastructure construction, development and management company with extensive experience in focus area of road projects, including highways, bridges and flyovers. Its main business operations include (i) providing engineering, procurement and construction (“EPC”) services on a fixed-sum turnkey basis and (ii) undertaking civil construction and related infrastructure projects on item rate and lump sum basis, primarily in the roads and highway sector. It has also forayed into executing water pipeline projects and is currently undertaking two water supply projects in Rajasthan on a turnkey basis which includes the designing, construction, operation and maintenance of the project. HGIEL enjoys accreditations, such as the ISO 9001:2015, ISO 14001:2004, OHSAS 18001:2007 certification for quality management systems, environment management systems, and health and safety management systems, respectively, issued by LMS Assessment Services Private Limited.

HGIEL has executed or is executing projects across various states in India covering Rajasthan, Uttar Pradesh Haryana, Uttarakhand, Maharashtra and Arunachal Pradesh. During the last five years, Company has completed 13 projects above the contract value of Rs. 40 crore in the roads and highways sector aggregating to a total contract value of Rs. 1674.89 crore, which included construction, improving, widening, strengthening of two and four lane highways, construction of high-level bridge and construction of earthen embankment, culverts and cart track underpasses. As on November 30, 2017, Company has 21 ongoing projects in the roads and highways sector which includes construction, improving, widening, strengthening, up gradation and rehabilitation of two, four and six-lane highways construction of high-level bridge and construction of road network. HGIEL’s order book for these ongoing projects in the roads and highways sector amounted to Rs. 3585.31 crore as on November 30, 2017, accounting for 96.70% of its total Order Book. As of November 30, 2017, it had a total Order Book of Rs. 3707.81 crore, consisting of 21 projects in the roads and highways sector, four civil construction projects and two water supply projects.

HGIEL is pre-qualified to bid independently on an annual basis for bids by NHAI and MoRTH for contract values of up to Rs. 806.66 crore based on Company’s technical and financial capacity as on March 31, 2017. While it independently executed the projects where it was pre-qualified to bid on an independent basis, it has also form project-specific joint ventures and consortiums with other infrastructure and construction companies, in particular, where it was not pre-qualified to bid independently or when a project requires to meet specific eligibility requirements in relation to certain large projects, including requirements relating to particular types of experience and financial resources.

To part finance it’s purchasing of capital equipment, repayment/prepayment of debts, general corpus fund needs, HGIEL is coming out with a maiden IPO of approx. 17111111 equity shares of Rs. 10 each via book building process with a price band of Rs. 263 – Rs. 270 per share to mobilize around Rs. 450.02 cr. to Rs. 462 crore based on lower and upper price bands. The company is making fresh equity issue worth Rs. 300 crore and offer for sale of 6000000 equity shares. Issue opens for subscription on 26.02.18 and will close on 28.02.18. Minimum application is to be made for 55 shares and in multiples thereon, thereafter. Issue constitutes 26.25% of post issue paid up capital of the company. Post allotment, shares will be listed on BSE/NSEThe averagege cost of acquisition of shares by the promoters is Rs. 3.33. Having issued entire equity at par since January 2003 to March 2016, it issued bonus in the ratio of 2 for 1 in September 2017. Post issue, its current paid up equity capital of Rs. 54.06 cr. will stand enhanced to Rs. 65.17 cr. Issue is jointly lead managed by SBI Capital Markets Ltd. and HDFC Bank Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.

On performance front, HGIEL has (on a consolidated basis) posted turnover/net profits of Rs. 472.95 cr. / Rs. 17.17 cr. (FY14), Rs. 367.59 cr. / Rs. 9.22 cr. (FY15), Rs. 743.29 cr. / Rs. 30.18 cr. (FY16) and Rs. 1058.58 cr. / Rs. 49.30 cr. (FY17). For first half of current fiscal, it has earned net profits of Rs. 29.28 cr. on a turnover of Rs. 569.53 cr. According to management, it suffered a setback for FY15 on account of change in Central Government and its policy.  It has reported an average EPS of Rs. 7.65 and average RoNW of 25.69% for last three fiscals on an equity base of Rs. 18.02 crore. Issue is priced at a P/BV of 7.11 based on NAV of Rs. 37.95 as on 30.09.17. If we annualize latest earnings and attribute it to fully diluted post issue equity then asking price is at a P/E of around 30 against industry composite P/E of around 34 with a high/low of 42/24. Thus issue appears fully priced. For last five years, HGIEL has reported CAGR of 34% in revenues and 37% in PAT.

On BRLM’s front, two merchant bankers associated with this offer have handled 21 public offers in the past three years, out of which 4 offers closed below the issue price on listing date.

Conclusion / Investment Strategy

Considering mega spending of around Rs. 4.3 trillion on National Highways in next five years by the Central Government, this company is poised for a bright prospects. Being fully priced offer, investment may be considered for long term.

The original review is written by Dilip Davda, appears on and is available here.
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