Increasing focus on non power

Well diversified order book and expanding non power sector service offerings are to drive growth

Power Mech Projects (PMPL) is one of leading infrastructure construction companies in the country providing spectrum of services in the Power, Industrial and Infrastructure sectors. The company is the largest third party O&M service provider in India with 110 ONGOING projects, including 40 AMCS and 10 overseas projects. 

Power Mech has established a niche in power generation in segments of installation, operation and maintenance of the entire power plant arena. Similarly, the Company has built strong expertise in the execution of projects in non-power sector related to infrastructure, steel plant installation works, cross country pipe lines, railway works, electrical works and undertaking of water related to drinking water supply and sewage treatment plants, among others. The Company has also forayed into manufacturing and mining development & operations as part of backward integration for sustained long term revenue with higher margins

Incorporated in 1999 the company started out providing Erection, Testing & Commissioning (ETC) of coal based power projects complete with boilers, turbines and generators (ETC-BTG) and balance of plant (BOP) for Sub-Critical, Super-Critical and Ultra-Mega Power Plants (UMPPs) and  expanded to included operations & maintenance of power plants.  In its second decade of existence it has diversified into civil and structural works of power plants as well as extension of ETC services to the non power sector.  From FY17 onwards it has expanded its service offerings to non-power segments such as Railways, Transmission & Distribution, development of Industrial Buildings, etc. In 2021-22 it has entered mining sector by bagging one large MDO order.

Presently it operates Pan-India with International operations spread across Middle East, North Africa, South Asia and Africa. In MEA and Africa it undertakes ETC projects and in the last 2 years, it has also established its presence in the O&M space in the MENA region.

The business operations of the company is divided into eight strategic business units (SBU) for agile response and ability to tap potential opportunities. 

Infrastructure Construction segment mainly caters to the civil works related to power plants for main plant and balance of plant, material handling systems, railway works on track laying, track doubling, bridges, stations works, maintenance depots, turnkey solutions for technology parks, irrigation canals and networks, roads, drinking water systems for rural segment. The Company is also presently establishing capability by undertaking civil works along with engineering on turnkey basis.

Electrical Transmission and Distribution SBU has developed rich experience in extra-high-voltage substation works of 33 KV to 700 KV, optical fibre networks, overhead equipment (OHE), signal & telecommunication (S&T) as part of railway electrification. The Company has experience in constructing and operating substations, maintaining existing substations, and construction of transmission lines.

Industrial services (O&M) SBU provides comprehensive and integrated O&M services under one roof in mechanical, electrical, control and instrumentation (C&I) areas. It also executes overhauling and maintenance of boiler, turbine & auxiliaries, refurbishment & maintenance of BTG, GTG, CHP, BOP; repair, modification and rehabilitation of boiler; revival and life extension; troubleshooting, upgrade & retrofits; rebuilds & plant relocation. It is focussed on expanding its O&M business into non-power sectors such as refineries, petrochemicals and steel. The Company also undertakes refurbishing of spares & manufacturing of reverse engineered parts for various plants.

Hydro Power & water SBU is involved in the supply & construction of hydropower plants; renovation & modernisation; annual maintenance contracts (AMC) and O&M; after-sales services, spares management, residual life analysis (RLA) studies, long term service agreements (LTSA); troubleshooting of chronic problems by providing value-added technical solutions in electromechanical and hydro-mechanical fields; EPC of mini-hydro projects; construction of sewage treatment plant (STP’s), water treatment plants, including their networking on EPC basis.

Manufacturing and Heavy Fabrication SBU as backward integration for the Company’s services business manufacturers spares and components in-house. It has advanced manufacturing and machining facilities at Noida for the entire range of services needed for the power and non-power sector. The Company fabricates heavy structures for plant buildings, conveyor systems, and material handling packages, large & high-pressure tanks, heavy trusses, ducts, and pipes. It also provides comprehensive solutions for repairing steam & hydro turbines. Furthermore, the Company has tie-ups with major OEMs for authorised production of critical & general spares, including reverse engineering of spares and components.

Overseas SBU provides services for erection, testing & commissioning of oil-fired boiler, heat recovery steam generator (HRSG), reserve/auxiliary boiler, BOP, steam turbine generators & auxiliaries, gas turbine generators & auxiliaries, combined cycle power piping, low pressure & high pressure piping, structural steel, cooling water system, fuel oil system, ESP, SCR, rotating equipment erection works for desalination plants as well as O&M of power plants.

Mine Development & Operation (MDO) SBU focuses on development of mine infrastructure, removal of overburden and extraction of coking coal, processing, crushing, transportation of coal, installation of coal handling facilities, carrying out R&R activities and any other activities incidental to mining.  The company has recently ventured into MDO business. 

Established track record in power sector ETC as well as other segments of infrastructure sector

PMPL has over two decades of   proven track record in erection, testing and commissioning of boiler, turbine and generator (ETC-BTG) and balance of plant (BoP), civil work and operations and maintenance of power plants.  PMPL is a comprehensive service provider in the power sector.

Till FY21 the company have successfully completed erection works of about 26.5 lakh MT, engaged in BTG and BoP capacity addition works of about 66640 MW and 1.95 lakh MT of structural fabrication. It also successfully laid about 400 kms of cross country gas pipeline and over 500 TKM of over-head electrification works.  The company has demonstrated strong execution capabilities across its areas of operations.

PMPL has executed major projects across India for various clients such as Bharat Heavy Electricals Limited (BHEL), NTPC Limited, independent power producers (IPPs) and state generation utilities. The company also has presence in Middle East, South Asia and Africa via subsidiaries and Joint Ventures.

Expanding the services footprint & leveraging technical expertise to target higher margin contracts

ETC business though continues to remain a major area of operations and revenue driver for the company. This is despite the country currently largely focus on renewable capacity addition rather than thermal capacity addition, as the company has enter into value-added services by synergizing the existing ETC capabilities into non-power sector for increased business growth in metal, steel, minerals, petrochemicals etc.  Further PMPL has been gradually diversifying and reducing the dependence from the same and has been increasing its focus on O&M segment and international operations wherein the margins are higher and also on other segments like civil and other works and non-power sectors like steel, oil & gas, manufacturing etc.

The company is working to integrate the construction capabilities with EPC opportunities available in material handling jobs using the strong Civil and ETC base already established for improved growth.

On overseas operations or exports front the company apart from consolidating its current business in Middle East, Africa and Bangladesh it also looking for opportunities in petrochemicals, refineries, desalination plants as well as expanding O&M business. In addition it is also expanding into more geography.     In the last 2 years, the Company has also established its presence in the O&M space in the Middle East and North Africa where it has strong presence in ETC projects for long time.

The non-power sector is the key for charting the Company’s growth in view of huge investments planned as part of National Infrastructure Pipeline (NIP) worth Rs 111 lakh crore in the next 5 to 6 years by the Government of India.  So it is in the process of identifying feasible and rewarding EPC contracts in infra segment in Railway, Roads, Urban Infra Development, Energy, Transmission and Distribution networks as part of National Infrastructure Pipeline (NIP ) by synergizing the existing capabilities for more diversified growth with profitability.  The Company has already been in the fray in many segments where investments are taking place as per the NIP document. The company has already expanded or in the process of expanding its services to projects in   Railways, Roads, Steel Plant works, Material Handling works, Oil and Gas sector, Cross Country Pipe lines, Urban Infrastructure projects is on the anvil. The company has already bagged orders in water with one large water supply project in UP.

The revenue for FY20 from power is close to 69% (PY: 68%) that includes both O&M as well as other power activities and the non-power is close to 31% (PY: 32%).

In FY21 revenue, the contribution of ETC was about 23.72% (34.68% in FY20); Civil was 36.54% (28.55%in FY20); O&M was 35.16% (29.97% in FY20) and electrical was 4.57% (6.80% in FY20). 

The company expects the contribution to revenue from railways and water to account for about 10-12% and 10% respectively going forward.

Diversified healthy order book provides long term revenue visibility

Order book of the company as end of Dec 31, 2021 stood at Rs 7497 crore with the company having bagged orders worth Rs 1971 crore in 9mFY21.  Current order book is about 3.98 times of FY21 revenue and thus it provides strong revenue visibility.

On including the large Rs 9294 crore MDO order that is executable over 25 years the order intake for 9mFY21 was Rs 11265 crore and the order backlog was Rs 16791 crore.

The current order book is well diversified with erection account for 27.7%, O&M 17.5%, electrical 1.8% and civil and other works about 52.9%.  But including large MDO order the order backlog, about 55.4% coming from mining, 23.6% from Civil & other works, 12.4% from erection, 7.8% from O&M and 0.8% from electrical works.

In terms of power and non-power, about 64.2% of the order book (excluding MDO order) is from power sector and 35.8% is from non power.  Further of the current order book about 10% is export orders and balance 90% is domestic orders.

The company is confident of closing FY22 with an order intake of more than Rs 4000 crore and an year end order book of about Rs 8800-9000 crore. 

Strong all round show in Q3FY22

 

For the quarter ended Dec 2021, the consolidated revenue has increased 27% to Rs 645.91 crore.  Operating profit margin has jumped from 4.3% to 10.5%, leading to 207% rise in operating profit to Rs 67.72 crore.      But with other income fell 57% to Rs 4.07 crore, the growth at PBIDT was moderated to 128% to Rs 71.78 crore.  Provision for interest rose 4% to Rs 19.78 crore.    Provision for depreciation rose 3% to Rs 9.09 crore.  Thus Profit before tax grew 1,092% to Rs 42.91 crore.    Provision for tax was expense of Rs 10.64 crore, compared to Rs 1.13 crore.  Effective tax rate was 24.52% compared to 26.40%. PAT was up 1205% to Rs 32.27 crore. Share of profit was down 29%   at Rs 0.49 crore. MI was –Rs 0.12 crore compared to +Rs 0.02 crore.  Thus the net profit attributable to owners of the company increased 950% to Rs 32.88 crore.  

    
For the nine month ended Dec 2021, the consolidated net revenue was up 60% to Rs 1808.09 crore.  Operating profit margin (OPM) has turned from negative 3.05% to positive 10.59% and thus the operating profit for the period stood at Rs 191.53 crore compared to loss of Rs 34.47 crore. Eventually the net profit attributable to owners of the company was a profit of Rs 91.40 crore compared to a loss of Rs 81.26 crore in the corresponding previous period.

Outlook

Sitting with healthy order book and strong order pipeline or L1 order, the company is expected to see strong execution driving top-line growth going-forward as the manpower availability has become normal with increased vaccination and less threatening nature of Covid variants. The increased focus on non power segment and order inflows will minimize the subdued investment and order inflow in coal power plants.

On the margin front the margin is expected to improve from current sub below 11.5% to earlier level of 12-13% gradually with increased contribution from new project that are bid at higher margin as well as absence of royalty of 2-3% paid to partners in case of new business segments such as Railway projects as well covid related costs.

With the company expect to close the fiscal with strong order book in excess of Rs 8800 crore excluding MDO order, the company is confident of crossing Rs 3000 crore in revenue for FY23.

Valuation  

We expect the company to register consolidated EPS of Rs 94.9 for FY22 and Rs 132.8 for FY23. The scrip is trading around Rs 929, which discounts the FY23 EPS by around 7 times.

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