This Small Cap Stock Missed Q2 Estimates, But Analysts Still See Over 44% Upside

Shares of HG Infra have been falling since the company disappointed investors, however, analysts at HDFC Securities see the stock gaining back steam on the back of a strong order book.

The HG Infra Analyst: The HDFC Securities analyst team led by Parikshit D Kandpal maintained the “buy” rating for the stock with a target price of ₹1,252, around 44% upside from the stock’s last closing price of ₹869.65.

The HG Infra Thesis: The analysts noted that the company’s September quarter results missed their expectations on all fronts. The revenue amounted to ₹870 crore, reflecting a 15.6% increase year-on-year but a 31.6% decrease quarter-on-quarter, missing the brokerage’s expectations by 11.1%. The EBITDA stood at ₹140 crore falling short of the analysts’ expectations by 12.1%.

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However, the analyst highlighted the company’s robust and diversified order book. As of September 2023, the order book stood at 10,680 crore, approximately 2.6 times the revenue for FY23. The order book is well-diversified at the client level, with government and private orders contributing 70% and 30%, respectively. Of the total order book, 51% consists of EPC (Engineering, Procurement, and Construction) orders, while HAM (Hybrid Annuity Model) orders make up the remaining 49%.

On the order inflow front, the company has revised its guidance down from ₹7,000-₹8,000 crore to ₹5,000-6,000 billion. This adjustment is attributed to a truncated ordering period due to elections and weaker-than-expected NHAI (National Highways Authority of India) ordering.

Given robust OB, likely pick-up in project execution and healthy balance sheet, the brokerage maintained its positive view on the stock.

Price Action: HG Infra’s share price was down 0.092% to trade at ₹868.85 in early trade on Friday.

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