HG Infra share price: Anand Rathi cuts target by 23%, retains 'Buy'; here's why

The brokerage firm Anand Rathi reduced the HG Infra Engineering's target price by 23 per cent to Rs 1,339 from Rs 1,749, but it retained a 'Buy' rating due to long-term growth potential. This adjustment reflected the company's challenges with execution and a high leverage scenario.

The company's Q1 revenue stood at approximately Rs 1,710 crore, marking a 13.5 per cent year-on-year increase. However, the EBITDA margin dropped to 13.8 per cent from 16.2 per cent in Q1 FY25, attributed to one-time provisions. Despite these challenges, the company continues to show strong execution abilities, the brokerage said.

Anand Rathi said a significant portion of HG Infra's current orders, around 50 per cent or roughly Rs 7,300 crore of the Rs 14,700 crore order backlog, awaits Authorisation to Design (AD) or Letter of Acceptance (LoA). This is a critical area for the company’s performance monitoring, given the diverse nature of its orders.

The company is also leveraging high levels of debt, currently at about Rs 1,050 crore. This is expected to normalise with disbursements from solar Special Purpose Vehicles (SPVs) and proceeds from monetising five Hybrid Annuity Model (HAM) assets. These moves are anticipated to strengthen the balance sheet, it said.

Recently, the Board approved the divestment of a 100 per cent stake in five HAM assets to Neo Infra Fund, an enterprise valued at Rs 3,580 crore. Adjusted for debt, the equity consideration is approximately Rs 1,380 crore, significantly enhancing financial flexibility.

Given these developments, Anand Rathi has maintained the revenue estimates for FY26 and FY27, while slightly reducing EBITDA margins by 64 and 24 basis points, respectively. The introduction of FY28 projections includes a revenue estimate of Rs 8,540 crore with anticipated growth of 11.3 per cent year-on-year.

The stock, excluding investments, is currently trading at a price-to-earnings ratio of approximately 6x based on forecasted earnings for FY27. The main risks include delays in the receipt of AD and high debt levels.

In terms of market performance, Anand Rathi said HG Infra Engineering is facing competition from peers in the infrastructure and construction sectors. Continued focus on execution and financial management will be crucial for maintaining investor confidence and achieving projected growth targets.