25th November,2022

COMPANY UPDATE

Retail Equity Research

Power Mech Projects Ltd Buy
Capital Goods 12 Months Investment Period Rating as per Small Cap
BSE CODE : 539302 NSE CODE: POWERMECH
CMP:Rs. 2,135 TARGET:Rs. 2,609 RETURN:22%
BLOOMBERG CODE: POWM:IN SENSEX : 62,294 (Closing: 25.11.2022)

KEY CHANGES: TARGET RATING EARNINGS

Strong orderbook, execution to pick up… Company Data

Power Mech Projects Ltd. (POWM) is a leading infrastructure construc- Market cap (Rs cr) 2,993
tion company based in Hyderabad with a global presence. Enterprise Value 3,356
• The company bagged a new FGD order of Rs.6,163cr, from Adani Outstanding Shares (cr) 1.5
Group and a civil order of Rs.499cr form BMRCL during this quarter. Free Float (%) 37.1
• Current order book of Rs.24,076cr, which is 7.8x TTM revenue (incl.
Dividend Yield (%) 0.1
9,294cr of mining order) provides strong visibility.
52 week high (Rs) 2,180
• POWM has reported its highest ever Q2 revenue of Rs.771cr in this
quarter, with a growth of 43% YoY. 52 week low (Rs) 805
• The EBITDA margin has improved to 11.2% (51bps YoY) from 10.7% 6m average volume (cr) 0.01
in Q2FY22. The reported PAT was Rs.43cr in Q2FY23 vs Rs.27cr in Beta 0.64
Q2FY22. Face value 10
• Management anticipates execution to pick-up in the upcoming quar-
Shareholding (%) Q3FY22 Q4FY22 Q1FY23
ter and has targeted to achieve Rs.4,000cr+ of revenue in FY23,
which includes the FGD order from Adani Group. Promoters 63.7 63.7 63.7
FII’s 3.9 4.1 4.9
• Given the robust order book and we expect the execution to improve.
MFs/Institutions 8.3 8.3 9.4
We value the stock at P/E of 10x FY24E. we maintain our rating to
Buy rating and revise target price to Rs. 2,609. Public 24.1 23.8 22.0
Total 100 100 100
Segment revenue, boost top line Promoter Pledge Nil Nil Nil
The company reported its highest-ever revenue of Rs.771cr in Q2FY23, which
Price Performance 3 Month 6 Month 1 Year
was 43% higher than the previous year. Domestic business contributed 87%,
while overseas business contributed 13%. The reported PAT for Q2FY23 was Absolute Return 44.1% 105.8% 110.8%
Rs. 42.6cr, compared to Rs.27cr in Q2FY22. The EBITDA margin stood at Absolute Sensex 5.7% 13.3% 5.8%
11.2%, when compared to 10.7% in Q2FY22.The performance was primarily Relative Return* 38.3% 92.5% 105.0%
fuelled by a strong execution across all segments. Growth in segment reve- *over or under performance to benchmark index
nues backed up top-line growth, with Erection/O&M/Civil showing a
52%/20%/66% increase when compared to Q2 FY22. The current orderbook 2500 POWM Sensex Rebased
is mainly composed of 39.4% in power segments and 60.8% in non-power
2000
segments. This demonstrates that the company is constantly seeking better
diversification in its business segments. 1500
New orders provides future visibility
1000
The company has received a FGD order from Adani Group worth Rs.6163cr,
which is expected to be executed over a period of 30 months, and a civil order 500
worth Rs.499.4cr to construct a depot cum workshop for Bangalore Metro Nov 21 Feb 22 May 22 Aug 22 Nov 22

Rail Corporation Ltd. (BMRCL). The management counts on the FGD project
Consolidated (cr) FY22A FY23E FY24E
to contribute to the top line by Q4FY23 and a total of Rs.400cr to be added to
the year from the project. The MDO order from Coal India is anticipated to Sales 2,710 3,766 5,378
begin from Q4FY24. The company has currently received Rs.774cr worth or- Growth (%) 43.9 38.9 42.8
EBITDA 286 428 628
ders this quarter and has a projection of adding Rs.300cr worth of orders
EBITDA Margin (%) 10.6 11.4 11.7
over the coming quarters. Strong order inflow is expected in erection, O&M PAT Adj. 138 234 384
and civil segments. Furthermore, the company is taking efforts to improve Growth (%) - 69.2 0.1
the Electrical business segment. The current order book stands at Adj.EPS 94 159 261
Rs.24,076cr (including MDO order of Rs.9,294cr). Growth (%) - 69.2 63.8
Margins to improve P/E 21.3 12.6 7.7
P/B 2.8 2.3 1.8
The EBITDA margin was 11.2%, up 51 bps YoY, and the PAT was Rs. 43 crore,
EV/EBITDA 10.7 7.1 4.9
up 58% YoY. Given the expectation of improved execution in the coming ROE (%) 14.2 20.2 26.2
quarters, the company expects the margins to improve further. We upgrade D/E 0.7 0.4 0.3
our margin estimates to 11.4%/11.7% in FY23/FY24.
Valuation and Outlook
With a robust order pipeline, strong execution across most of the verticals,
and efforts to enhance the Electrical business segment, we anticipate that the
company’s margin to improve. Therefore, we remain optimistic on the stock
and value Power Mech Projects Ltd. (POWM) at a P/E of 10x FY24E and reit-
erate our Buy rating with a revised target price to Rs. 2,609.

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Quarterly Financials (Consolidated)

Profit & Loss

YoY Growth QoQ Growth YoY Growth

(Rs cr) Q2FY23 Q2FY22 Q1FY23 H1FY23 H1FY22
(%) (%) (%)
Sales 771 539 43.0 747 3.3 1,518 1,162 30.6
EBITDA 87 58 49.8 84 3.7 170 124 37.4
EBITDA margins (%) 11.2 10.7 51bps 11.2 4bps 11.20 10.65 55bps
Depreciation 10 9 8.0 10 1.2 20 18 9.0
EBIT 77 48 57.9 74 4.0 150 106 42.3
Interest 21 17 27.1 20 5.5 41.8 36 15.9
Other Income 3 5 -41.08 2 44.2 5 10 (51.3)
Exceptional Items - - - - - - - -
PBT 58 37 58.6 55 4.9 113 80 42.3
Tax 15 8 97.6 14 10.5 28.6 18 60.0
Reported PAT 43 27 57.9 39 8.3 82 59 40.4
Adjustments - - - - - - - -
Adj PAT 43 27 57.9 39 8.3 82 59 40.4
No. of Shares 1.5 1.5 1.5 1.5 1.5
EPS (Rs) 29 18 57.9 26.8 8.3 82 58.5 40.4

Change in Estimates

Old estimates New estimates Change (%)

Year / Rs cr FY23E FY24E FY23E FY24E FY23E FY24E
Revenue 3,889 5,269 3,766 5,378 -3.2 2.1
EBITDA 425 585 428 628 0.7 7.4
Margins (%) 10.9 11.10 11.4 11.7 47bps 59bps
Adj. PAT 239 366 234 384 -2.0 4.8
EPS 163 249 159 261 -2.3 4.8

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Consolidated Financials

PROFIT & LOSS BALANCE SHEET

FY20A FY21A FY22A FY23E FY24E Y.E March (Rs. cr) FY20A FY21A FY22A FY23E FY24E
Revenue 2,165 1,884 2,710 3,766 5,378 Cash 75 64 150 180 172
% change -4.3 -13.0 43.9 38.9 42.8 Accounts Receivable 542 534 667 759 862
EBITDA 271 42 286 428 628 Inventories 126 115 138 178 245
% change -8.9 -84.5 583.4 49.7 46.8 Other Cur. Assets 1,351 1,314 1,409 1,740 2,291
Depreciation 39 36 37 44 48 Investments 33 41 39 41 43
EBIT 231 6 249 384 580 Gross Fixed Assets 355 367 405 435 475
Interest 74 79 79 86 89 Net Fixed Assets 176 165 172 158 150
Other Income 9 16 17 18 19 CWIP 3 5 2 11 13
PBT 167 -57 187 316 510 Intangible Assets 3 3 3 3 3
% change -21 -134 -429 69 61 Def. Tax (Net) 8 22 12 14 17
Tax 37 -11 46 80 127 Other Assets - - - - -
Tax Rate (%) 22.5 19.9 24.7 25.4 25.0 Total Assets 2,327 2,270 2,597 3,091 3,803
Reported PAT 131 -49 138 234 384 Current Liabilities 901 814 938 1,184 1,494
Adj* 0 0 0 0 0 Provisions 5 6 9 10 12
Adj PAT 131 -49 138 234 384 Debt Funds 455 509 527 525 540
% change -12.5 - - 69.2 0.1 Other Liabilities 14 35 80 96 100
No. of shares (cr) 1 1 1 1 1 Equity Capital 15 15 15 15 15
Adj EPS (Rs.) 89 -33 94 159 261 Reserves & Surplus 936 890 1,029 1,261 1,643
% change -0.1 - - 0.7 0.6 Shareholder’s Fund 951 905 1,043 1,275 1,658
DPS (Rs.) 1 1 0 2 1 Total Liabilities 2,327 2,270 2,597 3,091 3,803
BVPS (Rs.) 647 615 709 867 1,127

CASH FLOW RATIOS

Y.E March (Rs. cr) FY20A FY21A FY22A FY23E FY24E Y.E March FY20A FY21A FY22A FY23E FY24E
Net inc. + Depn. 208 -13 222 359 559 Profitab. & Return
Non-cash adj. -4 50 16 5 -38 EBITDA margin (%) 12.5 2.2 10.6 11.4 11.7
Changes in W.C -251 96 -63 -205 -409 EBIT margin (%) 10.7 0.3 9.2 10.2 10.8
C.F. Operation -48 122 175 159 112 Net profit mgn.(%) 6.0 -2.6 5.1 6.2 7.1
Capital exp. -27 -25 -40 -39 -42 ROE (%) 14.8 -5.2 14.2 20.2 26.2
Change in inv. 0 0 0 -2 -2 ROCE (%) 14.6 2.4 13.6 17.7 22.6
Other invest.CF 30 -20 -12 0 0 W.C & Liquidity
C.F – Investment 3 -47 -52 -43 -47 Receivables (days) 78.5 104.2 80.8 69.3 55.4
Issue of equity 0 0 0 0 0 Inventory (days) 18.5 23.3 17.0 15.3 14.4
Issue/repay debt 63 -86 -61 -88 -74 Payables (days) 120.8 133.2 97.6 74.9 55.2
Dividends paid -18 -787 0 22 15 Current ratio (x) 2.3 2.5 2.5 2.4 2.4
Other finance.CF 0 -3 -3 0 0 Quick ratio (x) 0.6 0.7 0.8 0.8 0.7
C.F – Finance 32 -86 -37 -85 -73 Turnover & Leverage
Chg. in cash -13 -11 86 30 -8 Gross asset T.O (x) 6.2 5.2 7.0 9.0 11.8
Closing cash 75 64 150 180 172 Total asset T.O (x) 1.0 0.8 1.1 1.3 1.6
Int. coverage ratio (x) 3.1 0.1 3.1 4.5 6.5
Adj. debt/equity (x) 0.6 0.7 0.7 0.4 0.3
Valuation
EV/Sales (x) 1.5 1.7 1.2 0.9 0.6
EV/EBITDA (x) 11.6 76.3 11.2 7.5 5.1
P/E (x) 24.0 -64.6 22.7 13.4 8.2
P/BV (x) 3.3 3.5 3.0 2.5 1.9

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 27th December 2018

Recommendation Summary (last 3 years) Dates Rating Target

31-Mar-21 Buy 727
2700 28-Jun-21 Buy 894
12-Aug-21 Accumulate 939
2200 25-Nov-21 Buy 1,163
16-Sept-22 Buy 1,989
1700 25-Nov-22 Buy 2,609

1200

700

200
Nov-19 May-20 Nov-20 May-21 Nov-21 May-22 Nov-22

Source: Bloomberg, Geojit Research.

Investment Rating Criteria

Ratings Large caps Midcaps Small caps
Buy Upside is above 10% Upside is above 15% Upside is above 20%
Accumulate - Upside is between 10% - 15% Upside is between 10% - 20%
Hold Upside is between 0% - 10% Upside is between 0% - 10% Upside is between 0% - 10%
Reduce/sell Downside is more than 0% Downside is more than 0% Downside is more than 0%
Not rated/ Neutral -

Definition:
Buy: Acquire at Current Market Price (CMP), with the target mentioned in the research note.
Accumulate: Partial buying or to accumulate as CMP dips in the future.
Hold: Hold the stock with the expected target mentioned in the note.
Reduce: Reduce your exposure to the stock due to limited upside.
Sell: Exit from the stock.
Not rated/Neutral : The analyst has no investment opinion on the stock.

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possi-
ble that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/ return/lack of clari-
ty/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or
SELL.
Not rated/Neutral- The analyst has no investment opinion on the stock under review.

General Disclosures and Disclaimers

CERTIFICATION
I, Vinod TP, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the sub-
ject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

COMPANY OVERVIEW

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 27th December 2018
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he, his associates and his relatives have no actual/beneficial ownership of 1% or more in the subject company covered.
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5. Disclosure regarding Market Making activity:
VINOD T P
Digitally signed by VINOD T P
Date: 2022.11.28 11:03:43
Neither Geojit/its Analysts have engaged in market making activities for the subject company. +05'30'

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