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On Monday, Investec (LON:INVP) analysts downgraded HG Infra Engineering (HGINFRA:IN) from Buy to Hold, adjusting the price target to INR1,300 from the previous INR1,640. The downgrade followed the company’s Q4 standalone EBITDA of Rs2.8 billion, marking a 7% year-over-year increase but falling short of estimates by 5% due to lower margins. The Profit After Tax (PAT) also missed expectations, significantly impacted by a sharp rise in finance costs, attributed to increased unbilled work in progress (WIP) and working capital.
Investec expressed skepticism about HG Infra’s fiscal year 2026 guidance, which anticipates order inflows of Rs110 billion, a revenue growth of 17%, and EBITDA margins between 15-16%. The firm’s analysts highlighted concerns over a slowdown in National Highways Authority of India (NHAI) ordering, a stagnant order book since FY23 when adjusted for L1 orders as of March 2025, and a shift in business mix towards segments with lower margins.
The company’s strategy to diversify into new sectors such as transmission and distribution (T&D), renewables, and water over the next two to three years is seen as a potential risk to margins, which could fall below current levels. Investec also anticipates that this diversification may require significant balance sheet deployment.
In light of these factors, Investec has revised its earnings per share (EPS) estimates for FY26E-27E downwards by 6-15%. Additionally, the target multiple has been lowered to 10 times from 12 times to reflect the anticipated headwinds. The analyst’s statement concluded with a cautionary note on the aggressive nature of the company’s future guidance and the potential challenges it faces.
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