Power Mech Projects IPO note by SPA Research

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Power Mech Projects is a mechanical contractor undertaking erection, testing & commissioning of boilers, turbines & generators (ETC-BTG) (67% of revenue) and O&M (20% of revenue) as well as civil works services (13% of revenue) in the power sector, mainly in India. It also has some International presence mainly in Middle East, Africa and South Asia which contributes less than 10% of revenues. It has a niche client base which includes BHEL, NTPC, Adani, L&T, Thermal Powertech, GE Power, CLP India, BGR, Thermax, etc. Between FY11-15, total thermal power capacity addition in India was ~88GW, of which ~39% of orders were bagged by the company. Its revenue and net profit has grown at a CAGR of 22% and 14% between FY11-15.

Outlook & Valuation
Power Mech is well placed to capitalize on increasing opportunities in power generation sector given Indian Government's target to provide 24 hours of electricity to all by 2019. Plans of adding 24 GW of capacity over next two years, presents incremental order opportunity of ~9 GW for Power Mech. Leveraging of domestic expertise of working on complex power projects to increase share of international revenues would further drive growth.

"At the issue price band of INR 615-640, the stock is available at a PE of 13.3x post issue FY15 EPS of INR 48.10, which seems to be reasonable given its dominant position, book to bill of 2.5x, proven track record and superior execution capabilities. Although it does not have any direct peers, companies (likes of Sunil Hitech, BGR Energy, Mcnally Bharat, Techno Electric) participating in some of the works, are trading at an average P/E of 17.8x FY15 earnings. We hence recommend investors to SUBSCRIBE to the issue for long term gains", says SPA Research report.