H.G. Infra Engineering Ltd Management Discussions

Economic overview

Global economy

In the fiscal year 2023, despite facing significant macroeconomic hurdles, the global economy showcased remarkable resilience, achieving a growth rate of 3.2%. Challenges such as geopolitical tensions, fluctuating commodity prices, and elevated inflationary pressures persisted across both advanced and emerging markets.

To combat escalating inflation, central banks in major economies implemented measured interest rate hikes. Consequently, inflation declined more rapidly than initially anticipated from its peak in 2022. This fostered gradual economic expansion and bolstered employment opportunities across the United States, Europe and other emerging markets.

However, sustained geopolitical unrest continued to disrupt global supply chains and trade dynamics. Chinas economic performance remained sluggish throughout 2023, a trend expected to persist into 2024. Given Chinas substantial manufacturing capacity and extensive supply networks, its struggles could negatively impact the global economy. Conversely, several emerging markets such as India, Vietnam and Mexico demonstrated robust growth trajectories, along with increasing capital inflows from foreign institutional investors.

Outlook

The easing of inflationary pressures and the adoption of more accommodating monetary policies by central banks are expected to favour the outlook. Projections indicate that the GDP growth rate will remain steady at 3.2% in CY 2024, maintaining this rate into CY 2025. Despite ongoing geopolitical tensions in Europe and West Asia, a cautious optimism persists. There is an anticipated gradual rebound and stabilisation of the global economy. The collective efforts by governments and the resilience demonstrated by economies worldwide will be instrumental in shaping a sustainable and inclusive growth trajectory in the years ahead.

Indian economy

Despite grappling with various global challenges, India maintained its position as one of the worlds fastest-growing major economies in FY 2024. With a robust macroeconomic framework, burgeoning domestic demand, and prudent monetary policies implemented by the Reserve Bank of India (RBI), Indias real GDP expanded by 8.2%. Headline inflation, as measured by the year-on-year changes in the all-India consumer price index (CPI), stabilised at 5.4% in FY 2024

Merchandise exports experienced a seasonal upsurge in March 2024, coinciding with a peak in industrial production. The manufacturing sector emerged as a key driver of industrial growth, registering a steady 11.6% increase throughout FY 2024. Notably, enhanced capacity utilisation across manufacturing propelled economic expansion further.

Despite the declining inflation rates and increased credit demand, an atmosphere of economic optimism prevailed. Efforts to streamline supply chains and increased government expenditure shielded India from significant economic disruptions. India is increasingly viewed as a viable alternative to China and is projected to become the worlds third- largest economy by 2027.

Outlook

The Indian economy remains optimistic, supported by strong fundamentals such as political stability, heightened government focus on public capital expenditure, a gradual rise in private capital expenditure and growing credit demand. The robust banking and financial services sector are expected to strengthen the nations growth trajectory. India has swiftly established itself as a preferred manufacturing hub, catering to the rising global demand for manufactured products. Leveraging its large domestic market and expanding export prospects, Indias growth trajectory is expected to surpass other economies in the foreseeable future.

Union budget FY 2024-25

For the financial year 2024-25, the Ministry of Road Transport and Highways has received a significant increase in funding, totalling around INR 2.78 lakh crores. Out of this, INR 1.68 lakh crores is designated specifically for the National Highways Authority of India (NHAI) for the development of national corridors. The governments commitment to accelerate new project awards in the upcoming months is evident, with plans to revive the Build, Operate and Transfer (BOT) module for 54 projects worth over INR 2.2 lakh crores in the pipeline.

In the interim budget for 2024, INR 2.55 lakh crores has been earmarked for the railway sector, maintaining strong capital expenditure momentum compared to the previous years allocation of INR 2.41 lakh crores. Notably, the Indian Railways has outlined an ambitious INR 4.2 trillion plan to multi-track seven high-density corridors and expand 10,959 kilometres over the next decade.

Industry overview

Road and highway infrastructure of India

India has one of the largest road networks in the world, spanning approximately 66.71 lakh kilometres and comprising national highways, state highways and rural roads. This extensive network is vital to the countrys economic and social development, ensuring efficient transportation and connectivity across diverse regions. Although national highways make up only about 2% of the total road network, they handle over 40% of the traffic, highlighting their significance in the national infrastructure.³ 2^nd largest road network in the world The construction of national highways has significantly accelerated, with a notable increase in the pace of development. By the end of 2023, the National Highways Authority of India (NHAI) had expanded the national highway network by 60% from its 2014 baseline, reaching 1,46,145 kilometres. This rapid expansion is part of the governments broader initiative to enhance infrastructure, with the NHAI playing a pivotal role in implementing key projects like the Bharat mala Pariyojana, which aims to develop and enhance about 34,800 km of highways nationwide.⁴ The pace of construction reached its highest in FY24, with an estimated construction rate of 18.2 km per day.#

The length of various categories of roads in India⁵

National highways	1,46,145 km
State highways	1,79,535 km
Other roads	63,345,403 km

The Gati Shakti programme launched by the government, aims to enhance connectivity and logistics efficiency by integrating road, rail and waterways into a seamless transportation network. This initiative contributes to economic development and ease of doing business by improving last-mile connectivity and reducing transit time. By fostering a holistic development environment, Gati Shakti aims to increase the capacity and efficiency of Indias transportation networks, supporting the countrys ambition to become a $5 trillion economy by FY 2026-27.

Increasing National Highways network⁶

Year	Length (in km)
2019-20	1,32,995
2020-21	1,38,376
2021-22	1,41,345
2022-23	1,45,240
2023-24 (up to Nov 2023)	1,46,145

Financially, the government has continued to prioritise road infrastructure, with the Union Budget for 2024-25 allocating approximately Rs 2.78 lakh crore to the Ministry of Road Transport and Highways. This includes a significant portion designated for the NHAI to advance national highway developments under the Bharatmala project and other related initiatives. The budget reflects a modest increase from the previous year, underscoring the governments commitment to sustaining and expanding Indias road infrastructure to meet future demands and support economic growth.⁷

The infrastructure sector plays a key role in driving Indias economic expansion and holistic development. As the country progresses toward becoming a global economic powerhouse, the need for robust infrastructure becomes increasingly apparent. Partnerships with the private sector have emerged as pivotal in this pursuit, bringing essential investment, innovation and efficiency. The synergy between governmental bodies and private enterprises is vital in crafting resilient, forward-looking infrastructure that paves the way for a prosperous and sustainable future for every Indian citizen. The Central Government significantly increased its capital expenditure in the past two budgets, with capital outlay rising from INR 4.1 trillion in FY2021 to INR 10.0 trillion in FY2024.##

The infrastructure sector remains a focal point for capital expenditure, primarily driven by investments in roads, bridges, and the power sector, reflecting the governments strong emphasis on infrastructure development. Structural reforms such as the Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), digitization initiatives, corporate tax rationalization, and labor law reforms have further bolstered the investment landscape.

Historically, during election years, state governments tend to accelerate the completion of infrastructure projects and inject additional funds into the economy. Therefore, there is a strong likelihood that a plethora of new infrastructure projects will be announced in the coming twelve months, alongside the completion of ongoing ones. This presents a significant opportunity for infrastructure and construction companies operating in India. ##

Budget allocation for the Ministry of Road Transport and Highways

(In Rs Crore)

	FY 2023-24	FY 2024-25
NHAI	1,67,400.00 (RE)	1,68,464.00
Roads and bridges	1,08,520.38 (RE)	1,09,093.19
Total	2,75,920.38	2,77,557.19

Railway infrastructure of India

Indias railway infrastructure remains a cornerstone of its transportation sector, characterised by extensive growth and strategic enhancements. The Indian Railways, one of the worlds largest rail networks, has achieved significant milestones in expanding its track length, with 5,100 km of track laid during the fiscal year 2023-24, averaging more than 14 Km per day.⁸ This expansion is part of a broader effort to modernise and improve the railways efficiency and connectivity across the country. As of Feb 2024, 61,813 km of Broad-Gauge network has been electrified.⁹

The governments commitment to this sector is underscored by substantial financial contribution, with a record budgetary allocation of t2.55 lakh crore for the fiscal year 2024-25. This represents a 5.8% increase over the previous year aimed at further developing and modernising railway infrastructure.

Indian Railways records 1,434.03 MT freight loading till Feb 2024

Foreign Direct Investment (FDI) has been instrumental in driving the growth of Indias railway sector. These investments have facilitated numerous projects, including the introduction of high-speed trains, track modernisation and the enhancement of safety and signalling systems. The governments decision to allow 100% FDI in the railway sector, has paved the way for increased international partnerships and technological advancements.

Looking ahead, the outlook for Indias railway infrastructure is robust, driven by ambitious government initiatives and significant capital inflows. The National Rail Plan aims to dramatically expand and upgrade the network by 2030, focusing on high-speed rail corridors, electrification and the development of dedicated freight corridors to enhance logistical efficiency. The plan includes the procurement of 400 Vande Bharat trains, and the redevelopment of over 1,300 stations, which are expected to significantly transform the passenger experience.¹¹ The Ministry of Railways plans to expand the Vande Bharat train fleet, introduce hydrogen-powered trains, lay new tracks, and complete the Ahmedabad-Mumbai bullet train project. The Vande Bharat Express will continue to be a key focus. In addition to the Perambur Integral Coach Factory, production of the Vande Bharat Express will now also occur at three more factories in Sonepat (Haryana), Latur (Maharashtra), and Raebareli (UP).

These developments will enable the railway sector to provide enhanced passenger services and increased freight handling capacity meeting the demands of a growing economy.

Metro infrastructure of India

Indias metro rail network has grown remarkably, positioning it as a key component of urban mobility across the nation. The network has expanded from 248 kilometres in 2014 to 945 kilometres by 2024 across 21 cities, making it the third largest in the world. Significant expansions are underway, with an additional 919 kilometres of metro lines under construction.

This rapid development is part of the broader National Urban Transport Policy, which aims to establish metro systems in cities with populations exceeding two million. This reflects the governments commitment to enhancing urban transportation and reducing congestion.¹²

697 km Metro Rail network added in 10 years.

The government continues to support the expansion of the metro rail network through substantial financial investments, including a notable allocation in the Union Budget 2024-25. The metro construction sector presents a substantial opportunity, with projects valued at over USD 46.5 billion in various stages of planning, approval, tendering, financial closure, and construction

Key projects such as the expansion of the Delhi Metro and the introduction of new metro lines in cities like Pune and Kolkata are set to further enhance connectivity.

The Metro Rail Policy of 2017 and initiatives like the PM Gati Shakti plan are instrumental in driving these developments. These initiatives aim to integrate various modes of transport and improve the overall efficiency of urban transit systems in India.

Renewable energy sector of India Solar power

Indias solar power sector continues to shine brightly as a cornerstone of the countrys renewable energy strategy. With an installed capacity that has increased by 30 times in the last nine years, reaching 82.63 GW as of April 2024. India stands as a global leader in solar energy.¹³ This remarkable growth is underpinned by supportive government policies, including the ambitious target of achieving 500 GW of renewable energy capacity by 2030, of which solar energy is a significant contributor.¹⁴

Key government initiatives, such as the National Solar Mission and the Production Linked Incentive (PLI) scheme for solar PV manufacturing, have played pivotal roles in accelerating solar power development. the suspension of the ALMM order to encourage the use of cost-effective modules has further bolstered this growth. Furthermore, the strategic focus on developing solar cities and parks, and the push towards floating PV projects, highlight Indias innovative approach to maximizing its solar potential. Indias solar energy sector is rapidly expanding, driven by vast potential and robust policy support. With an extraordinary solar potential of 5,000 trillion kWh per year, the country has significant renewable resources. As of February 2024, Indias installed solar capacity reached 75.6 GW, with an ambitious target of 200 GW by FY 2028. Approximately 85% of this capacity comes from utility-scale projects, ensuring efficiency and cost reduction. The Production Linked Incentive (PLI) scheme is pivotal in boosting Indias solar manufacturing capabilities. *The Indian government has an ambitious plan to achieve 500 GW of clean energy by CY2030 out of which 300 GW will come from solar. Based on recent government announcements, it is projected that

Indias annual solar capacity additions will likely double over the next two to three years. MNRE launched a program to hold annual auctions for a massive 50 GW of renewable energy ("RE") capacity. This substantial increase aims to rapidly expand Indias clean energy infrastructure, 80% of this targeted capacity is specifically earmarked for solar power projects.*

Green hydrogen

The green hydrogen sector in India is on the brink of transformative growth, driven by the National Green Hydrogen Mission with an initial investment of INR 19,744 Cr. This mission aims to establish India as a global hub for green hydrogen production and export, targeting at least 5 million metric tons per year by 2030.¹⁵ This ambitious target is backed by an estimated investment of ?8 trillion (approximately $100 billion).**

The governments comprehensive strategy includes incentives worth $2.3 billion under the SIGHT programme to stimulate green hydrogen production and electrolyser manufacturing.¹⁶ These efforts are complemented by policy measures designed to reduce the cost of green hydrogen and promote its adoption across various sectors, including transportation and industry, positioning green hydrogen as a key drive of Indias decarbonisation goals.

The governments unwavering commitment to renewable energy is evident in its enhanced targets and substantial investments, aiming to catalyse green investments, create green jobs and ensure a sustainable future. With an estimated requirement of around USD 500 billion to achieve the 2030 renewable energy targets, India is actively encouraging private sector participation and international collaboration to meet these ambitious goals.¹⁷ Initiatives like the PLI scheme, dedicated green funds and targeted incentives for MSMEs further support the growth of the renewable sector.

As India progresses in enhancing its renewable energy capabilities, the integration of solar power and green hydrogen into the energy mix not only bolsters energy security and environmental sustainability but also establishes India as a leader in the global shift towards a low-carbon economy.

Government Initiatives

Bharat mala Pariyojana

The budgetary allocation continues the implementation of the National Infrastructure Pipeline (NIP). Major ongoing infrastructure projects include the $130 billion Bharatmala Pariyojana, the $30 billion Narmada Valley Development, the $90 billion Delhi-Mumbai Industrial Corridor, the $2.2 billion Mumbai Trans Harbour Link project, the $600 million Navi Mumbai International Airport, the $600 million Inland Development Waterways project, and the $100 million Chenab River Railway Bridge.

The project was launched with the primary focus on optimising the efficiency of the movement of goods and people across the country. This was achieved by bridging critical infrastructure gaps through effective interventions such as the development of Economic Corridors, Inter Corridors and Feeder Routes, along with initiatives for National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity, Roads and Green- field expressways.

As part of the Bharatmala Pariyojana, 25 greenfield high-speed corridors are set for development. In Phase I of the project, which involves constructing 34,800 km of national highways, substantial progress has been achieved. By December 2023, contracts for constructing 26,418 km have been awarded, and around 15,549 km have been completed.¹⁸

National Rail Plan Vision 2030

The National Rail Plan (NRP) 2030 for India aims to create a "future ready" railway system by 2030. The primary objective of the NRP is to proactively create capacity ahead of demand. It seeks to formulate strategies based on operational capacities and commercial policy initiatives to increase modal share of the Railways in freight to 45%.

The National Infrastructure Pipeline (NIP) has allocated a cumulative Rs 13.67 trillion to railway projects from FY20 to FY25, aiming to enhance passenger and freight transport efficiency.

Gati Shakti Master Plan

This initiative aims to integrate the planning and execution of infrastructure projects across multiple sectors including roads, railways, airports and ports with a holistic vision. The goal is to enhance multi-modal connectivity and logistics efficiency, ultimately reducing the cost of goods and services.

National Infrastructure Pipeline (NIP)

It is a five-year programme in India aimed at enhancing the quality of life for citizens by constructing world-class infrastructure across the country. With as initial sanctioned amount of ?102 lakh crore and aims to attract both domestic and foreign investments into infrastructure projects. The NIP is considered crucial for India to achieve its goal of becoming a $5 trillion economy by 2025.¹⁹

The extensive array of road projects underscores the governments commitment to modernizing Indian highways and improving road quality. Government projections indicate a planned expenditure of USD 270.0 billion over the next five years under the National Infrastructure Pipeline initiative. The National Infrastructure Pipeline (NIP) was launched to oversee 6,835 infrastructure projects aimed at attracting around INR 111 trillion in investments from FY2020-25. Its key goals include providing a comprehensive view of Indias infrastructure development, ensuring top-level government oversight for timely project completion, and offering investors a clear investment pipeline.

As per the India Investment Grid website, the NIP has expanded to over 9,358 projects across 57 sub-sectors, with a total project value of INR 158.9 trillion (USD 1910.2 billion) as of September 30, 2023. These projects, jointly funded by the Central Government, State Governments, and the private sector, encompass economic and social infrastructure. With extensive linkages both forward and backward, the development of physical infrastructure under the NIP is set to significantly boost the economys productivity in the medium term.

National Green Hydrogen Mission

This government initiative aimed at making India a global hub for the production, utilisation and export of green hydrogen. The mission supports the establishment of green hydrogen production capacities nationwide, aligning with global energy transition goals and Indias commitments to achieving net-zero targets.

The mission aims to help Indias self- reliance through clean energy and reduce its dependence on fossil fuel imports. The NGHM aims to achieve a green hydrogen production capacity of 5 million metric tonnes per year by 2030 and to add 125 GW of renewable energy capacity.

Growth drivers

Government initiatives and budget allocations

Significant government funding and strategic initiatives like the Bharatmala Pariyojana and the Gati Shakti Master Plan serve as major catalysts for driving progress. These projects are geared towards enhancing road connectivity and infrastructure across the country, with substantial budget allocations ensuring continued expansion and upgrades.

Public-Private Partnerships (PPPs)

The encouragement of PPP models in road construction and maintenance projects allows for more efficient capital utilization and innovation in construction practices, thereby stimulating growth in this sector.

Increased motor vehicle penetration

As vehicle penetration increases in India, the demand for improved and more extensive road networks grows, driving further development in the highway sector.

High-speed and dedicated freight corridors

The development of high-speed passenger corridors and dedicated freight corridors aims to reduce travel time and enhance cargo capacity representing another significant growth area within the railway sector.

Growing focus on renewable energy inclusion

Indias ambitious targets for renewable energy expansion, including specific goals for solar energy and green hydrogen production, are backed by supportive policies and incentives. Initiatives such as the Production Linked Incentive (PLI) scheme for solar PV manufacturers and the National Green Hydrogen Mission play a crucial role in this endeavour. Diversifying energy sources to include renewables not only enhances energy security but also reduces dependence on imported fossil fuels, further driving growth.

Company overview

H.G. Infra Engineering Limited (HGIEL) is a prominent player in Indias infrastructure construction industry, offering a wide range of services nationwide. Founded in 2003, the Company has established itself as a leader in the development of roads, highways, bridges, runways, and civil construction projects.

Expanding its scope, HGEIL now offers comprehensive engineering, procurement, and construction (EPC) services on a turnkey basis, alongside projects under the Hybrid Annuity Model (HAM). Prioritising excellence, safety and reliability, HGIEL upholds the highest standards across its operations.

Benefitting from an extensive in-house equipment fleet and a skilled workforce, HGEIL executes projects efficiently across 12 states in India.

HGIELs business model emphasises diversification across multiple Roads and Highways, infrastructure sectors, spanning railways & metro and solar power projects. This approach is geared towards fostering growth and making significant contributions to Indias evolving infrastructure landscape.

The Company has a robust order book, serving as a testament to its strong position in the market. The Companys consistent delivery of high-quality projects has earned from HGIEL has consistently won and executed high quality projects from both government and private entities alike.

Partnerships with major clients like the Ministry of Road Transport and Highways (MoRTH), the National

Highways Authority of India (NHAI) and the Delhi Metro Rail Corporation (DMRC) underscore HGIELs solid reputation and credibility in the industry. With a commitment to innovation and sustainable development, HGIEL continues to focus on EPC and HAM projects in the road and highway sectors. Additionally, the Company actively explores new opportunities in other infrastructure domains to further diversify its portfolio and drive sustained growth.

Outlook

The government has launched numerous initiatives, such as Vision 2047 in roads and highways and substantial opportunities in the railways sector. HGIEL has fortified its position as a formidable force in the infrastructure sector. The companys extensive experience in the EPC (Engineering, Procurement and Construction) and HAM (Hybrid Annuity Model) sectors has prepared it to capitalize on these government initiatives.

As part of its long-term strategy to diversify the order book, HGIEL has gained considerable ground in the railways and metro segment. The governments budget allocation of t 2.55 lakh crores, focusing on multitracking corridors and station remodelling, presents substantial opportunities. Currently, HG Infra has six railways projects in the order book across five states.

Additionally, HGIEL is keen to participate in projects like Namami Gange to clean and rejuvenate the Ganga river, and other infrastructure development projects related to water desalination, wastewater treatment plants, and water supply projects in rural and urban areas under schemes like the Jal Jeevan Mission (JJM).

HGIEL is geared for the next growth phase of the company, projecting a 15% to 20% growth in Revenue in the coming years while maintaining steady margins in the range of 15% to 16%. With all senior leadership in place, skilled manpower and strategies for digital transformation and automation, HGIEL is well-prepared to explore diverse business opportunities.

For the coming year, HGIEL is aiming for around t 11,0000-12,0000 million in order inflows. Despite a low ordering period from NHAI last year, HGIEL anticipates strong bidding pipelines post- elections, with opportunities in HAM and EPC highway projects.

HGIEL is targeting around t 80,000 million of orders from highway projects, with the balance coming from water, solar, and railways sectors. Specifically, the company anticipates t 20,000 million from railways and metro, and t 10,000 to 20,000 million from Solar and Water Sector.

In the next 2-3 years, HGIEL revenue mix is expected to evolve as follows:

60% from road projects: Leveraging the companys strong position in the highway sector and the expected surge in order inflows.

40% from other sectors: This includes railways, solar and water projects. The diversification is aimed at balancing the portfolio and reducing dependency on a single sector.

For FY25, HGIEL capex plans are around t 1000 Millions.

For the HAM projects, the total equity requirement is t 14,600 Millions, with t 6,940 million already infused. The remaining equity requirement is t 7,660 million which HGIEL plans to allocate as follows:

FY25: t 4,590 million

FY26: t 1,760 million

FY27: t 1,310 million

Category wise performance Category wise Order book Split

(Amount in Rs Million)

	Road	Rail	Solar
FY 2022-23	1,13,001	12,952	-
FY 2023-24	84,850	26,507	12,983

During the fiscal year 2023-24, HGIEL saw impressive order book growth: 104% in Railways and 100% in Solar. This highlights HGIELs proactive strategy and strong presence as a leading EPC player in the infrastructure sector.

Other operating expenses

(Amount in Rs Million)

	2023-24	2022-23
Other expenses	926	648
Employee expenses	2,882	1,959
Operating profit	8,220	7,103

employee expenses surged by 47.12% from t1,959 million in FY 2022-23 to t2,882 million in FY 2023-24.

Financial overview Credit Ratings:

In FY24, ICRA upgraded HGIELs long- term and short-term credit ratings outlook to positive, citing HGIELs financial growth and discipline.

Please Refer page 125 of this Report for Credit Rating Profile of the Company.

Analysis of the profit and loss statement

Revenue:

HGIELs performance for FY 24 has been satisfactory. The total revenue from operations reached t 51,217 million, marking a robust 15.9% year-on-year increase from t44,185 Million in FY 23.

EBITDA:

EBITDA* for FY 24 amounted to t8,220 million, resulting in an EBITDA margin of 16%, compared to t7,103 million and a 16.1% margin in FY 23. PAT for FY 24 stood at t5,455 million with a profit margin of 10.7%, up from t4,214 million and 9.5% margin in FY 23.

Operating Expenses:

Total operating expenses saw a 15.95% increase, shifting from t 37,082 million in FY 2022-23 to t 42,997 million in FY 2023-24.Within this, raw material costs, on the other hand, rose by 5.59% from t21,435 million in FY 2022-23 to t22,633 million in FY 2023-24. Similarly,

Analysis of the Balance Sheet

Sources of funds:

As of March 31, 2024, the Companys capital employed amounted to t27,697 million, contrasting with t22,821.02 million as of March 31, 2023. The return on capital employed, which gauges returns generated from each rupee invested in the business, stood at 25.04% in FY 2023-24, compared to 27.69% in FY 2022-23. The net worth of the Company reached t23,185 million as of March 31, 2024, up from t17,784 million as of March 31,2023, attributable to changes in Company reserves and surpluses. The Companys equity share capital, comprising 65,171,111 equity shares of t10 each.

*Excludes other Income

The standalone debt of the Company totalled t4,512 million as of March 31, 2024. In FY 2023-24, the debt-equity ratio of the Company stood at 0.19, compared to 0.28 in FY 2022-23.

Finance costs of the Company rose by 27.96% from t633 million in FY 2022- 23 to t810 million in FY 2023-24. The Companys debt service coverage ratio stood at a comfortable 2.83 at the close of FY 2023-24, contrasting with 4.97 at the close of FY 2022-23.

Applications of funds:

As of March 31, 2024, the Companys fixed assets (gross) amounted to t 12,312 million, compared to t 10,336 million as of March 31, 2023. Depreciation on assets stood at t 1,411.72 million in FY 2023-24, contrasting with t 963.82 million in FY 2022-23.

Investments:

As of March 31, 2024, the Companys non-current investments amounted to t6,276 million, compared to Rs 7,447 million as of March 31,2023.

Working capital management:

As of March 31, 2024, the Companys current assets totalled t25,777 million, contrasting with t19,870 million as of March 31, 2023. At the close of FY 2023-24, the Current and Quick ratios of the Company stood at 1.68 and 1.48, respectively, compared to 1.36 and 1.2, respectively, at the close of FY 2022-23.

Inventories, encompassing raw materials, work-in-progress, and finished goods, among others, amounted to Rs 2,967 million as of March 31, 2024, as against t2,353 million as of March 31,2023. The inventory turnover ratio was 8.51 times, compared to 10.23 times in FY 2022-23.

Trade receivables stood at t9,177 million as of March 31, 2024, compared to t8,791 million as of March 31, 2023. All receivables were secured and considered good. The Company maintained its debtors turnover ratio at 5.70 times in FY 2023-24, compared to 5.60 times in FY 2022-23.

The Companys cash and bank balances totalled t1,993 million as of March 31, 2024, as against t1,794 million as of March 31,2023.

Return on net worth:

As of March 31, 2024, the return on net worth of the Company stood at 23.5%, compared to 23.7% as of March 31, 2023, attributable to changes in the Companys profits.

Details of significant changes in key financial ratios along with explanation:

EBITDA/Turnover Ratio: Flat at 16% for both FY 2023-24 and FY 2022-23 indicates consistent profitability from core operations. Return on Equity (ROE): Slight decrease from 23.7% to 23.5% in FY 2023-24 suggests a marginally lower return on shareholders investment. Shareholders equity increased in FY24 by 31%. Earnings per Share (EPS): Significant jump of 29.5% from FY 2022- 23 to FY 2023-24 reflects increased profitability per share. Net Profit Margin: Increase from 9.54% to 10.65% in FY 2023-24. Inventory Turnover Ratio: Improvement from 10.23 to 8.51 suggests better inventory management in FY 2023- 24. Current Ratio: Increase from 1.36 to 1 .68 in FY 2023-24 indicates improved short-term liquidity for HG Infra. Debt- to-Equity Ratio: Improvement from 0.28 to 0.19 in FY 2023-24 indicates a more financially stable position. The Interest Service Coverage Ratio decreased from 16.15 to 12.26 due to increased financial cost.

Key ratios

Particulars	FY 2023-24	FY 2022-23
EBITDA/Turnover (%)	16.0%	16.1%
Debt-equity ratio	0.19	0.28
Return on equity (%)	23.5%	23.7%
Book value per share (t)	356	273
Earnings per share (t)	83.7	64.66
Debtors turnover ratio	5.70	5.60
Inventory turnover ratio	8.51	10.23
Interest service coverage ratio	12.26	16.15
Current ratio	1.68	1.36
Operating Margin (%)	16.05%	16.08%
Net profit margin (%)	10.65%	9.54%

Operational review

The Company has demonstrated robust operational performance throughout the financial year 2023-24, marked by significant advancements across its diverse project portfolio. The Companys order book as of March 31, 2024, stands at t 1,24,340 million. Orders received from government clients constitute approximately 83% of the Order Book whereas the private sectors contribution is 17% of the total Order Book as of March 2024.

Sector

SWOT analysis

Strength

• Strong track record in executing infrastructure projects, particularly in roads and highways.

• Presence across diversified sectors including roads & highways, railways & metro and solar energy.

• A robust presence in twelve states across India.

• The Company utilises modern construction technologies and machinery to enhance efficiency.

• Implements SAP across the organisation to enhance operational effectiveness and promote increased transparency.

• Strategic partnerships with entities like the National Highways Authority of India (NHAI) and Adani Road Transport Limited (ARTL).

Weaknesses

• Dependency on road projects (68.2% of order book), making HGIEL vulnerable to market cycles.

• Significant reliance on public sector projects which are susceptible to policy changes and budgetary constraints.

Opportunities

• Growing involvement in the solar and green hydrogen sectors.

• Benefiting from government schemes like Bharat mala, Gati Shakti, and the National Infrastructure Pipeline.

• Increasing opportunities for collaboration with private entities in infrastructure projects.

• Potential to expand operations beyond India to capture international markets.

Threats

• Sensitivity to economic downturns which can affect government spending on infrastructure.

• The infrastructure sector is highly competitive, with numerous domestic and international players.

• Vulnerable to changes in regulations and government policies affecting the construction industry.

Human resources

Employees are vital to a businesss success. They drive operations, innovate, and directly impact customer satisfaction. Engaged employees foster a positive work culture and high performance, making investment in their development and well-being crucial for long-term success.

The team at HGIEL has been instrumental in the Companys growth and innovation over the years. In FY 2024, the company prioritised developing a vibrant, diverse and engaged workforce. Emphasising trust and integrity, the company implemented fair and ethical business practices. To nurture a positive work environment, the company places a high value on developing an organisational culture that promotes continuous improvement and investing in its people and human resources. The organisation values its workers and recognises the wide range of experiences they have in a variety of fields and industries.

The organisation continually makes decisions focused on its employees needs, giving special consideration to their career and personal goals. The organisation supports its employees personal and professional development, encourages a sense of pride and belonging and supports a good work- life balance. The Company had 4,800+ employees as of March 31,2024.

Internal control systems and their adequacy

The Company has a strong internal audit system in place, which is regularly monitored and updated to safeguard assets, comply with regulations and promptly address any issues. The audit committee diligently reviews internal audit reports, takes corrective action as required and maintains open communication with both statutory and internal auditors to ensure the effectiveness of internal control systems. This robust internal audit framework ensures that the Company operates with integrity, transparency and accountability, while mitigating risks and safeguarding the interests of stakeholders.

Enterprise Risk Management

The Company has implemented an advanced enterprise risk management process to assess and monitor risks in the business operations for their likelihood and probable impact on the business and to ensure their mitigation.

The constantly evolving business environment and compliance landscape have led to significant changes in the variety of risks faced by the Company, which are addressed by the Enterprise Risk Management process.

For more details on Enterprise Risk Management, please read more on ERM section, Boards Report and Corporate Governance Report forming part of this Report.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward- looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward- looking statements based on any subsequent developments.