This midcap stock has surged over 5 times in 5 years; can you still ride the rally?

Midcap Stock to Buy: The stock of HG Infra Engineering Ltd, a civil infrastructure construction company, has surged 440.15 per cent in the past five years, beating the headline Nifty50 index by a spectacularly wide margin.

Is there still more potential in this midcap stock?

Domestic brokerage HDFC Securities remains bullish on the stock, citing the construction company's growth potential.

"We expect revenue, EBITDA, and PAT of the company to grow at 15 per cent, 13 per cent, and 5 per cent CAGRs respectively over FY24-FY26," HDFC Securities analysts wrote in a report dated May 13, 2024.

Here are some highlights of HG Infra’s consolidated Q4 FY24 numbers vs Q4 FY23:

• PAT up 11.1 per cent at Rs 190 crore
• Revenue up 11.2 per cent at Rs 1,708 crore
• EBITDA up 11.7 per cent at Rs 333 crore
• Margin up by 10 bps at 19 per cent

Taking into account HG Infra’s financial results for the fourth and final quarter of FY24, its five-year CAGRs for revenue, EBITDA and PAT stand at 20.6 per cent, 22.1 per cent, and 34.6 per cent, according to the brokerage.

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Why is the brokerage bullish on HG Infra?

Apart from a strong financial performance, here are some other likely positive triggers for the construction, according to HDFC Securities:

Business Model: HG Infra leverages a well-defined business model that combines a modern equipment fleet exceeding 2,800 units with digital initiatives to optimize processes and efficiency.

Shifting Gears: Recognizing the evolving infrastructure landscape, H.G. Infra is increasingly targeting Hybrid Annuity Model (HAM) projects.

Expanding Horizons: The company is strategically broadening its project portfolio to include non-road ventures including solar power, metro, railway, and water resource projects. They aim to generate 30-35 per cent of their order book from these sectors within the next 2-3 years.

Geographical Reach: The company boasts a geographically diverse project portfolio, spanning states like Rajasthan, Haryana, Delhi, and others across India.

Order Book: As of March 31, 2024, the infrastructure company held an order book valued at Rs 12,434 crore, with a healthy mix of road (68 per cent), rail & metro (21 per cent), and solar projects.

HG Infra Stock Price Target

The brokerage has a ‘buy’ call on HG Infra shares with base-case and bull-case targets of Rs 1,300 and Rs 1,392 from the perspective of the next 2-3 quarters, respectively.

HG Infra Shares vs Nifty Indices

As of May 14, HG Infra shares have risen 440.15 per cent so far in 2024, as against gains of 94.77 per cent and 200.80 per cent in the Nifty50 and Nifty Midcap 100 indices, respectively.