Power Mech Pro­jects Ltd

(BSE Code: 539302) (CMP: Rs.910.65) (FV: Rs.10) (TGT: Rs.1035+) By Amit Ku­mar Gupta

Money Times - - Best Bet -

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.

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