H.G. Infra Engineering's (NSE:HGINFRA) Problems Go Beyond Weak Profit

The market wasn't impressed with the soft earnings from H.G. Infra Engineering Limited (NSE:HGINFRA) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

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Zooming In On H.G. Infra Engineering's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

For the year to March 2025, H.G. Infra Engineering had an accrual ratio of 0.56. As a general rule, that bodes poorly for future profitability. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of ₹24b, in contrast to the aforementioned profit of ₹5.05b. We also note that H.G. Infra Engineering's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of ₹24b.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On H.G. Infra Engineering's Profit Performance

As we discussed above, we think H.G. Infra Engineering's earnings were not supported by free cash flow, which might concern some investors. As a result, we think it may well be the case that H.G. Infra Engineering's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 33% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 2 warning signs for H.G. Infra Engineering you should know about.

Today we've zoomed in on a single data point to better understand the nature of H.G. Infra Engineering's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.