HG Infra IPO Subscribed 0.44 Times on Day 2, Should you Invest?

H.G. Infra Engineering Ltd (HG Infra) has come with an IPO to raise Rs. 462 crore. HG Infra IPO comprises of a fresh issue of shares of Rs. 300 crore and an offer for sale of 6 million shares by the promoters of the company.

HG Infra has raised Rs. 138.59 crore by selling shares to 11 institutional investors as part of its anchor book allocation. The institutional investors that participated in the anchor book allocation include HDFC Trustee Co. Ltd, Reliance Capital Trustee Co. Ltd, Aditya Birla Trustee Pvt. Ltd, DSP Blackrock India Tiger Fund and L&T Mutual Fund Trustee Ltd, among others.

HG Infra share sale are managed by SBI Capital Markets Ltd and HDFC Bank Ltd. The company has received 84 per cent subscription under the retail investors category with overall subscription by the end of Day 2 of the bidding process i.e. Feb 27, 2018

HG Infra Projects

HG Infra has overall completed 13 large projects in the roads and highways sector aggregating to a total contract value of ₹16,748.94 million. Maharashtra and Rajasthan account for over 95 per cent of the EPC company’s order book. The projects included construction, improving, widening, and strengthening of two and four lane highways, construction of high level bridge and construction of earthen embankment, culverts and cart track underpasses. Till now, the company has 21 ongoing projects in the roads and highways sector.

Further, the company is pre-qualified to bid independently on an annual basis for bids by NHAI and MoRTH of about INR 925 crore, which will improve its cashflows. Additionally, HG Infra’s public sector clients are NHAI, PWD, MES and Jaipur Development Authority.

Key Dates of IPO

• Issue Open: February 26th, 2018 to February 28th, 2018
• Face Value: Rs 10 Per Equity Share
• Minimum Order Quantity: 55 Shares and can be applied in multiples thereon, thereafter
• Finalisation of Basis of Allotment: On or about Mar 6, 2018
• Initiation of refunds: On or about Mar 7, 2018
• Credit of Equity Shares to demat accounts: On or about Mar 8, 2018
• Commencement of trading of the Equity Shares on the Stock Exchanges: On or about Mar 9, 2018

Price Band and Use of Proceeds

HG Infra’s shares have been priced in a band of Rs263-270 per share.

The company will use the proceeds from the HG Infra IPO for buying equipment, repayment of debt and meeting general corporate expenses.

Should you invest in HG Infra IPO?

HG Infra is the third road infrastructure company to launch its IPO, since 2016. In 2017, Bharat Road Network Ltd, a road and highways company had come up with Rs. 600 crore IPO. In 2016, the mid-sized construction company and roads developer Dilip Buildcon Ltd had raised Rs. 664 crore by launching an IPO.

At the upper end of the price band, from the share sale, the company will get about Rs. 162 crore.

From FY 13 to FY 17, the company’s revenue has grown at the CAGR of 34%, PAT has grown at the CAGR of 37% and its total order book has grown at CAGR of 94%. In addition, in the 1H FY 18, the company’s profit is of INR 29.3 crore. Post adjustment of IPO, gives the price to earnings ratio of 22 times its FY18 earnings.

Furthermore, Asian Infrastructure Investment Bank (AIIB) of Beijing, has approved $1.5 billion in loans to India for infrastructure projects. This is positive for the company as more projects will come.

Since the company’s valuation is attractive, the investors with moderate risk profile can subscribe the HG Infra IPO with a long term view.