Power Mech Projects Ltd
(BSE Code: 539302) (CMP: Rs.910.65) (FV: Rs.10) (TGT: Rs.1035+) By Amit Kumar Gupta
Established in 1999, Hyderabad-based Power Mech Projects Ltd (PMPL) serves the power and infrastructure sectors. It is engaged in the erection, testing and commissioning (ETC) of boilers, turbines and generators (BTG); balance of plant works for various sectors such as power, petrochemicals, steel and cement; and overhauling, maintenance, renovation and modernization of power plants. It also undertakes civil, architectural and structural work including topographical surveying, geotechnical investigation, mass excavation and area grading, mill and bunker fabrication and erection, channel work, pipe line fabrication and laying, cooling towers, coal handling plants, plant roads and drains, pipe racks, refinery tanks and shells, commercial and residential buildings, gas power projects, etc. In addition, it offers services in the fields of petro chemical plants, cement, oil and gas and steel industries; undertakes maintenance programs for hydro generating units; manufactures various types of machinery parts and equipment; develops and constructs industrial sheds, etc. Further, it is engaged in the construction of water, electricity and telephone networks as well as installation and repair of electric power and transformer plants; installation, operation and maintenance (O&M) of electricity stations and pressure transformers.
PMPL delivered a strong performance in Q2FY19 backed by strong execution across its business verticals. Its consolidated revenues grew 55% YoY to Rs.5300 million aided by 171% YoY growth in
Civil and Other Work income on the back of strong execution pickup PAT (Rs. in mn) 640 910 1189 1444 in Andhra Pradesh Medtech Zone order. PAT soared 67% YoY to EPS (Rs.) 44 54 80.8 98.1
Rs.284 million. PMPL’s dominant position in the power EPC P/E (x) 21.2 15.1 11.5 9.5
business, its impressive order book and superior execution EV/EBIDTA(x) 9.7 8.0 6.7 5.6
capabilities will drive profitability going forward. ROCE (%) 14.7 15.6 17.6 18.4
Although PMPL’s EBITDA margin declined marginally by 25 bps RONW (%) 10.4 12.8 14.3 14.8
YoY to 12.8% owing to its sales mix, it remains healthy due to higher contribution of international projects, high-margin Civil and Other Work business and O&M business. The management expects margins to improve going forward owing to a shift in revenue-mix to the high-margin O&M business and growth in the non-power business. Total consolidated debt in Q2 stood at Rs.2800 million v/s Rs.3100 million in Q1 with net debt/equity ratio coming in at 0.2x, which provides a significant headroom for growth. As the management is confident of utilising internal accruals for new projects, PMPL’s total debt should not rise from the current level. PMPL secured orders worth Rs.36700 million in FY19 YTD (year-to-date) with 77% order inflow coming from the nonpower sector. This takes the total order book to Rs.69400 million, of which ETC order book stands at Rs.24300 million (35% of the total order book), O&M and Electrical Work order book stands at Rs.15600 million (23% of the total order book), Civil and Other Work order book stands at Rs.29300 million (42% of the total order book). Recently, PMPL secured two civil orders worth Rs.13900 million from the Andhra Pradesh government on Hybrid Annuity Mode (HAM), which is likely to be completed in 19 months. For its ETC, Civil and O&M business, PMPL plans to explore opportunities beyond the power sector mainly from the following sectors: Oil and Gas, Railways, Roads, Industrial Steel, Pipeline and Renewables. Its total order book remains strong at Rs.69000 million (4x FY18 sales), which offers robust revenue visibility for the next 3-4 years.
Technical Outlook: The stock looks very good on the daily chart for medium-term investment. It has formed a small double bottom pattern and trades above important moving averages like the 200 DMA level on the daily chart. Start accumulating at this level of Rs.910.65 and on dips to Rs.860 for medium-to-long term investment and a possible price target of Rs.1035+ in the next 6 months.