A POWER-PACKED PERFORMANCE

Power Mech Projects is a service provider to power plants and its services include erection, testing and commissioning of boilers, turbines and generators, and operation and maintenance (O&M). It will hit the capital market on August 7 with its initial public offer (IPO) in a price band of Rs 615-640. The company aims to raise Rs 273 crore in the upper price band by issuing 42.69 lakh equity shares of Rs 10 each (consisting of offer for sale of 21.41 lakh shares and remaining as a fresh equity issue). Being a service provider, the IPO proceeds will be used towards working capital requirements and debt repayment. Out of the total Rs 130 crore, the company plans to use Rs 105 crore for working capital while the remaining funds are earmarked as repayment of borrowings.

PMPL is engaged in three business verticals, including erection, testing and commissioning of boilers, turbines and generators (ETC-BTG) and balance of plant (BOP) for the power sector; operation and maintenance (O&M); and civil works which include construction jobs for the main plant and BOP requirements. Currently, the ETC-BTG business contributes nearly 67 per cent of the total business, O&M 20 per cent while the civil works account for 13 per cent. In the next two years, the company has a target to increase the share of revenues from the O&M segment to nearly 35-40 per cent while it is also looking for a good opportunity in the MENA region in the O&M sector.

PMPL’s aggregate order book as of March 31, 2015 was Rs 3,406.27 crore, comprising erection works, O&M services and civil works of Rs 2,302.87 crore, Rs 590.43 crore and Rs 512.97 crore respectively. The company bagged orders worth Rs 1,960 crore in FY15 and it has already bagged Rs 1,000 crore worth orders so far. By the end of this fiscal it expects to get another Rs 1,500 crore worth of contracts.

As of June 30, 2015, PMPL is engaged on 23 AMC services for power plants across India with an aggregate unit capacity of 32,835 MW. The company’s client list includes various government organisations as well as various renewed domestic private sector companies such as BHEL, NTPC, Thermal Powertech Corporation India, Adani Power, L&T, Reliance Infrastructure, etc. The company has also renowned international clients in the Middle East, North Africa, South Asia and South America and has executed various projects in the last financial year. The company has a target to increase its share of revenues from global sales to 14 per cent from the current 9 per cent.

PMPL has maintained a robust financial performance with emphasis on strong balance-sheet and increased profitability. The company has reported healthy growth of 29.1 per cent and 17.4 per cent revenue and earning CAGR over the last five years at Rs 1,372 crore and Rs 71 crore respectively in FY15. The RONW is as high as 20 per cent and has been consistent from the last three fiscal years. The company has also registered strong cash flows from operations and in FY13, FY14 and FY15 the net cash from operating activities was Rs 18 crore, Rs 26.7 crore and Rs 3.8 crore respectively.

The company’s total debt as of March 31, 2105 was Rs 236.6 crore i.e. debt to equity ratio of 0.67. With its valuation in a higher price band, the company is available at a P/E of 13.3x post issue equity share which is well in tune with the industry average PE ratio of 21.7x. Looking at the company’s fundamentals and valuations we believe subscribers should invest with a long-term investment perspective.