H.G. Infra Engineering Limited’s (NSE: HGINFRA) consolidated net profit for the infrastructure firm fell 18.3% in the third quarter despite double-digit revenue growth. Rising finance costs, a regulatory investigation into employees, and a debt service coverage ratio falling below critical levels present ongoing challenges for investors.
The company reported a decrease in profitability for the third quarter ended December 31, 2025, as sharp increases in finance costs and total expenses offset gains in consolidated revenue. While the company continues to secure new contracts in metro rail and energy storage, its financial position has weakened, characterized by rising leverage and a debt service coverage ratio that now signals potential strain in meeting debt obligations. The consolidated debt-to-equity ratio has climbed to 1.89 from 1.39 a year ago, reflecting a significant increase in borrowing.
Product and Project Highlights
The company is actively diversifying its Engineering, Procurement, and Construction (EPC) portfolio beyond traditional road projects into renewable energy and urban transit. Notable recent developments include:
- Battery Energy Storage Systems (BESS): Secured a ₹6,465 million project for a 300 MW/600MWh system in Gujarat and another ₹5,112 million BESS project.
- Metro and Railways: Awarded a ₹5,660 million share (40% of a joint venture) for the Thane Integral Ring Metro project and is executing projects for the New Delhi Railway Station and various dedicated freight corridors.
- Solar Energy: Pursuing solar power projects in Rajasthan under the KUSUM scheme with an order book value of ₹970 million.
Financial Performance
H.G. Infra’s consolidated revenue from operations for Q3 FY26 rose 12.4% year-over-year to ₹14,211.60 million. However, consolidated profit after tax declined 18.3% to ₹940.83 million. On a standalone basis, revenue fell 3.9% to ₹14,497.67 million, while net profit dropped 29.1% to ₹968.62 million.
Key financial metrics for the quarter include:
- EBITDA: Consolidated EBITDA rose 7.6% to ₹3,087.83 million, but margins compressed to 21.7% from 22.7% in the previous year.
- Finance Costs: Consolidated finance costs surged 72.5% to ₹1,291.77 million.
- EPS: Consolidated earnings per share for the quarter fell to ₹14.44 from ₹17.66 year-over-year.
- Balance Sheet Ratios: The consolidated Debt Service Coverage Ratio (DSCR) dropped to 1.00 for the quarter and 0.93 for the nine-month period, falling below the standard threshold of 1.0.
Compliance Review
An investigation by the Central Bureau of Investigation into H.G. Infra Engineering remains ongoing and sub-judice after an FIR was filed on Jan. 21, 2026 by its Anti-Corruption Bureau in Patna under provisions of the Prevention of Corruption Act. Four employees are in judicial custody, and searches were conducted at multiple company locations. Investigators recovered ₹0.77 million in cash from a vehicle linked to one employee; the company said the amount was already recorded in its books and has been treated as recoverable in standalone results.
Management, citing internal reviews and legal counsel, maintains the probe has had no impact on current financial results, operations, or the group’s financial position. Joint statutory auditors highlighted the matter for attention but did not modify their review conclusion, noting the company’s assessment of no immediate financial effect. While operations remain unaffected so far, the investigation represents a material risk, with potential reputational and project-pipeline implications that investors are monitoring.
Investment Thesis: (Bull vs. Bear)
- Bull Case: The company possesses a robust and diversifying order book exceeding ₹11,000 crore, with a growing presence in high-growth sectors like BESS and metro rail. A successful divestment of subsidiaries could significantly deleverage the balance sheet and provide liquidity for new projects.
- Bear Case: Financial health indicators are deteriorating, highlighted by a DSCR below 1.0 and a sharp rise in finance costs. The ongoing CBI investigation introduces significant regulatory and reputational risk that could potentially impact future project bidding or credit availability.
Business Outlook & Strategy
To address rising leverage, management has approved the 100% divestment of five wholly-owned subsidiaries. This strategy aims to recycle capital and streamline the balance sheet, though the transactions remain subject to achieving commercial operation dates (COD) and regulatory approvals. The total order book as of December 31, 2025, stands at ₹1,10,863 million, with road projects accounting for 78.8% and the remainder distributed across railways, metro, and BESS.
Asset Divestment
H.G. Infra Engineering plans to divest five wholly owned HAM-project subsidiaries to reduce leverage and recycle capital, with the transactions structured to transfer project-linked debt to incoming investors and improve coverage metrics.
The five SPVs carry combined borrowings of ₹20,514 million—₹6,168 million (Raipur–Visakhapatnam OD-5), ₹4,822 million (OD-6), ₹4,277 million (AP-1), ₹2,858 million (Khammam–Devarapalle PKG-1) and ₹2,389 million (PKG-2). Full divestment would move these liabilities off the consolidated balance sheet, potentially easing the debt-equity ratio, which rose to 1.89 from 1.39 a year earlier.
The company has invested ₹7,541 million of equity across the five projects. Proceeds from the sales would unlock capital for debt servicing and new equity commitments in metro, railway and energy-storage projects without incremental borrowing. Finance costs increased 72.5% year-on-year to ₹1,291.77 million in Q3 FY26. Deleveraging is also aimed at restoring the consolidated debt service coverage ratio, which declined to 0.93 for the nine months ended Dec. 31, 2025, below the 1.0 threshold typically seen as a minimum for comfortable servicing. Lower principal and interest obligations following divestment would support DSCR recovery.
Share purchase agreements have been executed for the five subsidiaries. Balance-sheet benefits are expected to crystallise after achievement of commercial operation dates and required regulatory approvals. The company previously reported an exceptional gain of ₹573.71 million from the sale of its Rewari Bypass SPV in FY25, indicating precedent for similar asset monetisation.