Sunday, August 09, 2015
Promoted by S. Kishore Babu, Hyderabad-based Power Mech Projects was incorporated in 1999 and is an integrated power infrastructure services provider of comprehensive erection, testing and commissioning of boilers, turbines and generators (ETC]BTG), balance of plant (BOP) works, civil works and operation and maintenance (O&M) services.
The company has an established track record of a wide range of maintenance services projects for large power plants including 800-MW super]critical power plants. Large owned equipment base and strong project management systems and capabilities have enabled the company to execute large, complex projects in India and internationally.
The company is erecting two ultra mega power projects and 16 super critical power projects with capacities ranging from 150 MW to 800 MW of power.
The company also provides O&M and annual maintenance contract services for power plants and has engaged on more than 400 O&M contracts since 1999. It had engaged 23 AMC services contracts for power plants across India with an aggregate unit capacity of 32,835MW end June 2015. For O&M solutions, the company has entered into an agreement with Chengdu Pengrun New Energy Development Company to set up a joint venture entity in Hong Kong. It is in the process of setting up a large heavy engineering facility at Noida and has a cooperation agreement with Shanghai Electric Power Generation Service Company for repair and overhaul in the power sector in India.
The order book stood at Rs 3406 crore end March 2015. It comprised of about Rs 2302-crore orders for erection works, about Rs 590 crore for O&M services and Rs 513 crore for civil works. The domestic market accounted for 83.6% and international markets for the rest 16.4% of the total order book. The order book stood at around Rs 4000 crore end June 2015.
The Offer and the Objects
The issue comprises fresh offer of 0.21 crore of equity shares. The offer size at the lower price band of Rs 615 per share works out to Rs 131 crore. At the upper price band of Rs 640 per share, the offer works out to Rs 136.32 crore. In addition, there is an offer for sale of 0.21-crore equity shares of Rs 10 each by the existing shareholders India Business Excellence Fund I, India Business Excellence Fund and two individuals( P. Srinivasa Rao and D. Aakashnag). The size of offer for sale at the lower price band of Rs 615 per share works out to Rs 131.61 crore and at upper price band of Rs 640 per share to Rs 136.96 crore.
Post offer, the holdings of India Business Excellence Fund I and India Business Excellence Fund will come down to around 1.28% and 1.27%, respectively, while the two individual shareholders will not hold any share.
The minimum bid lot is 20 equity shares and in multiples of 20 equity shares thereafter. The issue is being made through the book-building process and will open on 7 August and will close on 11 August.
The company intends to utilize the proceeds of the fresh issue of Rs 105 crore for working capital requirements and for general corporate purpose.
The company plans to leverage its expertise in construction capabilities and experience in ETC and BOP works and O&M services to other allied sectors such as petrochemicals, steel and cement. The diversification will reduce dependency on the power sector and will enable the company to grow faster.
The share of the O&M business in total revenues increased from 6.02% in FY2012 to 20% in FY2015.The O&M business has better margins than other segments. Having made sizeable investments in building the necessary resources for this segment, the company could be able to reap the benefits of higher margins in this segment going ahead.
The company intends to leverage its experience and track record of working on complex power projects in India to increase its operations internationally, particularly in the Middle East, North Africa and South Asia.
Nearly 100% of the business comes from the power sector, which is not doing well since the last couple of years.
The order book and contracts awarded are at lump-sum price and item-rate contracts. There may be change in the scope of work and risks of time and costs over runs, which are to be mostly borne by the company. The business involves inherent risks of financial and bank guarantees. The contingent liabilities including bank guarantees stood at Rs 567.50 crore end March 2015.
The company primarily deals with power utilities and government and semi- government-owned entities and independent power producers (IPP). The emergence of IPPs in the past several years have helped the order book and mitigated the low orders coming from state utilities. However, post execution, IPPs are not doing well and their liquidity position is under stress. Thus, future earnings can get affected in the event of low orders from IPPs and power utilities.
Net sales grew 14% to Rs 1355.61 crore and OP was up 7% to Rs 165.21 crore in FY 2015. After providing interest and depreciation of Rs 29.24 crore and Rs 36.64 crore, up by 11% and 12%, respectively, PBT was lower by 2% to Rs 105.24 crore. After providing for tax of Rs 34.54 crore, down by 10%, YoY, PAT stood at Rs 70.70 crore, up by 3% YoY. On post issue equity share capital of Rs 14.70 crore of face value of Rs 10 each, EPS works out to Rs 48.1.
At the higher price band of Rs 640, the issue is offered at a P/E of 13.3 times. Among the listed companies, Sunil Hitech Engineers and Technofab Engineering look comparable with Power Mech Projects. Sunil Hitech Engineers recently saw a sharp run-up .At the current market price of Rs 340, the stock is trading at P/E of 14 times its FY 2015 earnings. Technofab Engineers, at the current market price of Rs 200, is trading at P/E of 25 times its FY 2015 earnings. However, Sunil Hitech and Technofab are not overly dependent on the Indian power sector, the way Power Mech Projects is.
SML ISUZU Ltd 881 Market Cap 1282 Cr; EPS 21
P/E 42x, BV ~ 210; P/BV 4.2 x
Cash per share 55,
SML Virtually Debt Free Co.
• SML is India’s third largest manufacturer of light commercial vehicles such as trucks, buses and special vehicles
• It is the first company to manufacture and supply state of art fully built buses, ambulances and customized vehicles
• The company has a strong market position in the school bus and executive coach passenger carrier segment
• Presently, it has a market share of 7.5% in the commercial vehicles segment and aims to take it to 15% over the next 3 years.
• With a production capacity of 20,000 units per annum at its Punjab plant, the company was planning to ramp it up. Capex plan 220 Cr to be implemented in next 3 years
• While Sumitomo Corporation, Japan, and Isuzu Motors, Japan, hold 44% and 15% shareholding respectively has a multinational management prospects are bright
• SML has recently expanded its product portfolio by introducing new models in the intermediate commercial vehicles and the bus segment that is likely to expand its addressable market size and provide access to new customer groups such as State Transport Undertaking