2QFY19 Result Update Power Mech Projects 21 November 218 Reuters: POMP.BO; Bloomberg: POWM IN Strong Order Book Drives Robust Execution Power Mech Projects (PMPL) posted 2QFY19 consolidated revenues of Rs5.3bn, up 55% YoY and 19% above our estimate of Rs4.5bn. The growth was driven by 172% YoY surge in civil segment revenues to Rs2.1bn (39% of total sales versus 22% YoY) owing to execution of strong opening order book. ETC segment s revenues grew 23% YoY to Rs1.7bn (33% of total sales), on a low base, aided by strong execution in international markets. O&M segment s revenues were up 14% YoY at Rs1.4bn (26% of total sales). Revenues from international markets jumped 141% YoY to Rs1.3bn (24% of total sales) while domestic sales rose 39% YoY to Rs4bn. Aided by better operating leverage, EBITDA rose 52% YoY to Rs685mn, translating to an EBITDA margin of 12.8%, down 3bps YoY and marginally below our estimate of 13%. Resource mobilisation for civil works projects (which are yet to be booked in revenues) and project closure of an old BHEL order led to lower margin. Higher interest costs at Rs133mn (versus Rs87mn YoY) was offset by a lower tax rate (at 28.1% versus 29.8% YoY) and higher other income (at Rs38mn versus Rs19mn YoY). PAT grew 67% YoY to Rs284mn, exactly in line with our estimate. Order inflow in 2QFY19 surged to a life-time high level of Rs18.4bn driven by Rs13.8bn school infrastructure order. The order book remains strong at Rs62.6bn as at 2QFY19, up 5% YoY (4x FY18 sales) providing robust revenue visibility for the next two years. We have marginally tweaked our earnings estimates and rolled forward our valuation to September 22E earnings. We remain optimistic on PMPL s business scalability and have retained Buy rating on it with a revised target price of Rs1,295 (from Rs1,25 earlier) based on 12x P/E. ETC segment update: ETC revenues grew 23% YoY to Rs1.7bn in 2QFY19 and 25% YoY to Rs3.6bn in 1HFY19. Growth was aided by strong execution in international markets with sales doubling YoY to Rs2.5bn in 1HFY19 (25% of total sales). Order inflow in 2QFY19 was robust at Rs6.1bn aided by Rs4.9bn order from Dangote, Nigeria. Revenue booking from Nigeria project will commence from 3QFY19. ETC order book rose 11% YoY to Rs23.7bn (3.7x FY18 sales). The opportunity size in international markets is Rs4bn, but PMPL will be selective in taking orders with at least 18% EBITDA margin profile and expects the share of international business at ~2% of total sales. Civil works segment update: Driven by a strong order book, 2QFY19 revenues surged 172% YoY to Rs2.1bn and 112% YoY to Rs3.5bn. The execution of large projects such as Vizag AMTZ (55% billing complete till 2QFY19), railways and electrification is progressing extremely well. Order inflow in 1HFY19 was strong at Rs18.9bn driven by Rs13.8bn order for improving school infrastructure in five districts of Andhra Pradesh under the Sarva Shiksha Abhiyan. The order book jumped 142% YoY to Rs27.6bn (8x FY18 sales) providing it strong future revenue visibility. The management believes that rising share of civil works in total sales would lead to improvement in margins, cash flow and working capital cycle of PMPL. O&M segment update: O&M revenues grew 14% YoY to Rs1.4bn in 2QFY19 and % YoY to Rs2.7bn in 1HFY19. Order inflow was healthy at Rs1.8bn while the order book is strong at Rs9.6bn, up 9% YoY (1.9x FY18 sales). PMPL is looking to scale up its presence by focusing on opportunities in international markets, nonpower sector and captive power plants. Further, rising orders from NTPC and state electricity boards (PMPL won orders from Telangana, Madhya Pradesh and Karnataka) will also aid growth. Working capital position: PMPL intends to reduce its working capital cycle by diversifying into non-power sector (26% of sales in 1HFY19 versus 6% YoY) and international markets. Ex-cash net working capital cycle reduced to 128 days in 1HFY19 compared to 16 days in FY18. Operating cash flow improved to Rs537mn in 1HFY19 versus a negative Rs385mn YoY. Outlook: With a strong order book and robust order inflow outlook, we expect 25%/31% consolidated revenue/earnings CAGR, respectively, over FY18-FY21E. Healthy RoCE (24% in FY2E) and operating margin profile (above 13%) will aid valuation. Improvement in net working capital cycle is key to re-rating of the stock. BUY Sector: Capital Goods CMP: Rs93 Target Price: Rs1,295 Upside: 39% Chirag Muchhala Research Analyst chirag.muchhala@nirmalbang.com +91-22-6273 892 Key Data Current Shares O/S (mn) 14.7 Mkt Cap (Rsbn/US$mn) 13.5/189.3 52 Wk H / L (Rs) 1,84/697 Daily Volume (3M NSE Avg.) 21,174 Price Performance (%) 1 M 6 M 1 Yr Power Mech Projects 3.7 (7.) 22.6 Nifty Index 3.4.6 3.5 Source: Bloomberg Y/E March (Rsmn) 2QFY18 1QFY19 2QFY19 YoY (%) QoQ (%) 1HFY18 1HFY19 YoY (%) Net revenues 3,452 4,619 5,345 54.8 15.7 7,36 9,964 41.6 Raw material costs 2,191 2,93 3,527 61. 2.4 4,651 6,457 38.8 Staff costs 78 1,15 1,54 48.7 3.8 1,296 2,68 59.6 Other expenses 2 67 79 (21.9) 18. 179 147 (17.8) Total expenditure 3,1 4,12 4,66 55.3 16.2 6,126 8,672 41.6 EBITDA 451 68 685 51.9 12.7 9 1,292 42. EBITDA margin (%) 13.1 13.2 12.8 - - 12.9 13. - Interest costs 87 116 133 52.8 14.6 163 248 52.5 Depreciation 9 5 124 13.4 17.3 211 229 8.3 Other income 19 28 38 93.2 33.1 47 66 38.5 Share of profit from JV (.5) (.7).2 (.5) (.5) PBT 274 414 466 7.1 12.6 583 88 51.1 Tax 82 9 131 6.1 2. 176 24 36.1 Minority interest 22 61 51 55 113 PAT 17 244 284 67. 16.5 352 528 5. PAT margin (%) 4.9 5.3 5.3 - - 5. 5.3 - EPS (Rs) 11.6 16.6 19.3 67. 16.5 23.9 35.9 5. Please refer to the disclaimer towards the end of the document.
FY11 FY11 FY12 FY12 FY13 FY13 FY14 FY14 FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18 1HFY19 1HFY19 Order book Exhibit 1: Financial summary (consolidated) Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Net revenues 13,382 15,478 2,49 25,171 3,239 EBITDA 1,659 2,23 2,699 3,367 4,77 Net profit 647 794 1,85 1,394 1,783 EPS (Rs) 44. 54. 73.7 94.7 121.2 EPS growth (%) (13.8) 22.8 36.5 28.5 28. EBITDA margin (%) 12.4 13.1 13.2 13.4 13.5 P/E (x) 21.1 17.2 12.6 9.8 7.7 P/BV (x) 2.2 2. 1.7 1.5 1.3 EV/EBITDA (x) 9.1 7.6 5.7 4.7 3.9 Dividend yield (%).1.1.5.8 1. RoCE (%) 15.8 17.8 21.2 24. 26. RoE (%) 11. 12. 14.5 16.2 17.7 Exhibit 2: Revenue and margin trend (Rsbn) (%) 18 35.2 35.2 4 16 31.7 35 14 26.4 3 23.7 24.1 23.3 22.6 12 21.2 25 15.6 16.1 2 8 13.1 12.9 12.2 13.2 12.4 13.1 13. 15 6 7.4 4 5.5 5.7 5.2 5.5 4.8 5.1 5.3 2 7.7 5 Revenue Gross margin EBITDA margin PAT margin Exhibit 3: Trend in ETC segment s revenues and current order book (Rsbn) 25 23.7 2 15 5 4.5 5.9 7.4 8.9 9.1 8. 6.4 6.5 3.6 2 Power Mech Projects
FY11 FY11 FY12 FY12 FY13 FY13 FY14 FY14 FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18 1HFY19 1HFY19 Order book Order book Exhibit 4: Trend in O&M service segment s revenues and current order book (Rsbn) 12 9.6 8 6 4 2.3.4.8 1.4 2.8 3.8 4.9 5.2 2.7 Exhibit 5: Trend in civil & electrical works segment s revenues and current order book (Rsbn) 35 3 29.4 25 2 15 5.1.7 1.1 1.7 1.7 2. 2. 3.8 3.7 Exhibit 6: Segment-wise order book break-up Civil & electrical, Rs29.4bn, 47% ETC, Rs23.7bn, 38% O&M, Rs9.6bn, 15% 3 Power Mech Projects
Apr-16 Jun-16 Sep-16 Nov-16 Feb-17 May-17 Jul-17 Oct-17 Dec-17 Mar-18 May-18 Aug-18 Nov-18 Apr-16 Jun-16 Sep-16 Nov-16 Feb-17 May-17 Jul-17 Oct-17 Dec-17 Mar-18 May-18 Aug-18 Nov-18 Exhibit 7: Actual performance versus our estimates 2QFY19 (Rsmn) Actual Our estimate Deviation (%) Revenues 5,345 4,51 18.8 EBITDA 685 585 17. PAT 284 281 1.1 Exhibit 8: P/E charts (Rs) 1,6 1,4 1,2 1, 8 6 4 2 (x) 15 14 13 12 11 9 8 7 6 8x x 12x 14x 16x stock price Source: BSE, Nirmal Bang Research P/E 2 year average P/E SD +1 SD +2 SD -1 Source: BSE, Nirmal Bang Research 4 Power Mech Projects
Financial statement (consolidated) Exhibit 9: Income statement Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Net sales 13,382 15,478 2,49 25,171 3,239 % growth (2.9) 15.7 31.9 23.3 2.1 Raw material costs 9,143,24 13,164 16,185 19,383 Staff costs 2,265 3,122 4,184 5,59 5,897 Other overheads 314 3 363 56 882 Total expenditure 11,723 13,456 17,7 21,85 26,162 EBITDA 1,659 2,23 2,699 3,367 4,77 % growth (8.8) 21.9 33.4 24.7 21.1 EBITDA margin (%) 12.4 13.1 13.2 13.4 13.5 Other income 77 67 89 78 82 Interest costs 329 359 489 538 589 Depreciation 49 428 477 59 535 Profit before tax 998 1,33 1,822 2,397 3,35 Tax 357 392 5 719 9 Minority interest 6 (116) (227) (284) (341) PAT 647 794 1,85 1,394 1,783 % growth (13.8) 22.8 36.5 28.5 28. PAT margin (%) 4.8 5.1 5.3 5.5 5.9 EPS (Rs) 44. 54. 73.7 94.7 121.2 % growth (13.8) 22.8 36.5 28.5 28. Exhibit 11: Balance sheet Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Share capital 147 147 147 147 147 Reserves 6,65 6,838 7,834 9,4,728 Net worth 6,213 6,985 7,981 9,251,875 Minority interest 21 138 138 138 138 Short-term loans 1,643 2,462 2,587 2,887 3,187 Long-term loans 155 277 427 427 427 Total loans 1,797 2,739 3,14 3,314 3,614 Deferred tax liability 21 (25) (25) (25) (25) Total liabilities 8,53 9,837 11,8 12,678 14,62 Net block 2,36 1,998 1,99 1,7 1,414 Capital work-in-progress 148 87 5 5 5 Investments 9 1 1 1 1 Inventories 437 472 699 897 1,77 Debtors 2,949 3,86 3,914 4,689 5,551 Cash 347 948 1,292 1,224 1,456 Other current assets 7,71 9,228 11,123 13,593 16,329 Total current assets 11,434 13,733 17,27 2,43 24,413 Creditors 2,654 3,75 3,859 4,567 5,47 Other current liabilities & provisions 2,921 2,99 4,21 4,98 5,86 Total current liabilities 5,575 5,983 7,879 9,476 11,276 Net current assets 5,86 7,75 9,148,927 13,137 Total assets 8,53 9,837 11,8 12,678 14,62 Exhibit : Cash flow Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E EBIT 1,25 1,594 2,222 2,857 3,541 (Inc.)/dec. in working capital (416) (1,29) (1,54) (1,847) (1,978) Cash flow from operations 834 34 1,168 1,11 1,563 Other income 77 67 89 78 82 Depreciation 49 428 477 59 535 Tax paid (-) (377) (439) (5) (719) (9) Minority interest 6 (116) (227) (284) (341) Net cash from operations 949 245 996 594 929 Capital expenditure (-) (395) (33) (35) (3) (25) Net cash after capex 554 (85) 646 294 679 Interest paid (-) (329) (359) (489) (538) (589) Dividends paid (-) (18) (18) (88) (124) (159) Inc./(dec.) in short-term borrowing (276) 82 125 3 3 Inc./(dec.) in long-term borrowing (59) 122 15 - - Inc./(dec.) in total borrowings (335) 942 275 3 3 Inc./(dec.) in investments (6) 8 - - - Minority interest 17 117 - - - Cash from financial activities (671) 69 (32) (362) (448) Others 32 (5) - - - Opening cash balance 432 347 948 1,292 1,224 Closing cash balance 347 948 1,292 1,224 1,456 Change in cash balance (84) 6 344 (67) 231 Exhibit 12: Key ratios Y/E March FY17 FY18 FY19E FY2E FY21E Per share (Rs) EPS 44. 54. 73.7 94.7 121.2 Book value 422.3 474.8 542.5 628.8 739.3 Valuation (x) P/E 21.1 17.2 12.6 9.8 7.7 P/BV 2.2 2. 1.7 1.5 1.3 EV/EBITDA 9.1 7.6 5.7 4.7 3.9 EV/sales 1.1 1..8.6.5 Return ratios (%) RoCE 15.8 17.8 21.2 24. 26. RoE 11. 12. 14.5 16.2 17.7 RoIC 16.7 19.2 23.8 26.9 28.8 Profitability ratios (%) EBITDA margin 12.4 13.1 13.2 13.4 13.5 EBIT margin 9.3.3.9 11.4 11.7 PAT margin 4.8 5.1 5.3 5.5 5.9 Turnover ratios Total asset turnover ratio (x) 1.7 1.6 1.8 2. 2.1 Fixed asset turnover ratio (x) 3. 3.2 3.9 4.6 5.2 Debtor days 8 73 7 68 67 Inventory days 12 11 13 13 13 Creditor days 6 112 7 3 3 Solvency ratios (x) Debt-equity.3.4.4.4.3 5 Power Mech Projects
Aug-15 Oct-15 Nov-15 Dec-15 Jan-16 Mar-16 Apr-16 May-16 Jun-16 Aug-16 Sep-16 Oct-16 Nov-16 Jan-17 Feb-17 Mar-17 Apr-17 Jun-17 Jul-17 Aug-17 Sep-17 Nov-17 Dec-17 Jan-18 Feb-18 Apr-18 May-18 Jun-18 Jul-18 Sep-18 Oct-18 Nov-18 Rating track Date Rating Market price (Rs) Target price (Rs) 23 September 215 Buy 575 89 26 November 215 Buy 622 89 16 February 216 Buy 561 846 12 April 216 Buy 59 846 6 June 216 Buy 593 79 12 July 216 Buy 557 79 15 September 216 Buy 475 79 13 October 216 Buy 475 79 9 December 216 Buy 456 78 19 January 217 Buy 43 78 14 February 217 Buy 453 78 2 February 217 Buy 448 76 7 April 217 Buy 533 76 6 July 217 Buy 595 76 23 August 217 Buy 527 7 9 October 217 Buy 559 7 23 November 217 Buy 77 95 9 January 218 Buy 866 95 21 February 218 Buy 9 1, 6 April 218 Buy 876 1, 31 May 218 Buy 964 1,25 July 218 Buy 976 1,25 14 August 218 Buy 935 1,25 9 October 218 Buy 846 1,25 21 November 218 Buy 93 1,295 Rating track graph 115 1 5 95 9 85 8 75 7 65 6 55 5 45 4 35 3 Not Covered Covered 6 Power Mech Projects
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