HG Infra Engineering IPO sails through on last day; sees good retail demand

NEW DELHI: The initial public offering (IPO) by HG Infra Engineering received nearly five times subscription till 6 pm on Day 3 of the bidding process.

Data available with NSE showed that the issue had receive bids for 59.5 million shares as against the issue size of 21 million.

The engineering, procurement and construction (EPC) player is looking to raise up to Rs 300 crore from a fresh issue, partly to fund capital equipment worth Rs 90 crore, repay debt of Rs 116 crore and for other general corporate purposes. Existing shareholders intend to offload 60 lakh scrips. The price band for the issue is fixed at Rs 263-270 per share.

"The outlook in the road sector continues to be very healthy with significant uptick in ordering under Bharatmala and improved focus from states to improve road infrastructure. Our calculation suggests that the company can deliver 40 per cent earnings CAGR over FY17-20E," said Prabhudas Lilladher.

The brokerage believes that reasonable valuations will offer room for listing gains for the stock, but said it would rather prefer to hold players with stabilised track record like Ashoka Buildcon, Sadbhav and KNR over the longer term.

Two states -- Maharashtra and Rajasthan -- account for over 95 per cent of the EPC company's orderbook. The company offers EPC services on a fixed-sum turnkey basis and civil construction and related infrastructure projects on item rate and lump sum basis, primarily in the roads and highway sector.

Over 85 per cent of the company's revenues come from the road and highways sector.

Experts believe that one can subscribe to the issue with a long-term view. Given the fully-priced IPO valuations and the prevailing volatility in the market, listing upside could be capped, they said.

At the higher end of the price band, the issue is priced at 35.7 times (post dilution) on FY17. This is against Dilip Buildcon's 34.8 times its FY17 EPS, PNC Infratech's 35.5 times and J Kumar Infraprojects' 23.6 times valuations.

"At this valuation, the issue seems fully priced. Given the mature valuations, investors can subscribe to the issue from a long-term perspective. It must be noted that owing to the current market volatility and issue being offered at full valuation, it may cap listing gains," Centrum Broking said in a note.