Power Mech Projects (Power Mech) reported flat yoy sales for 2QFY2016. The
company reported a top-line of Rs317cr, which is up 0.3% yoy from the year ago
levels. The EBITDA, at Rs43cr in 2QFY2016, grew 13.0% yoy. Despite flat sales,
the EBITDA margin of the company expanded on a yoy basis to 13.5% for
2QFY2016. In-line with EBITDA growth, Power Mech reported a PAT of Rs18cr for
the quarter, reflecting 23.3% yoy growth. A 3.2% yoy decline in depreciation
expenses (to Rs9cr) and decline in effective tax rate (from 35.4% a year ago to
33.9% in the quarter) helped the company report a 107bp yoy PAT margin
Power Mechs order book as of 2QFY2016-end stood at Rs3,700cr, reflecting
order book to LTM ratio of 2.2x.
Valuation: On considering Power Mech 2QFY2016 order book of Rs3,700cr
(which gives strong earnings growth visibility), negligible debt on the books, and
higher return ratios (RoE of Power Mech is higher than that of its peers), we
assign a 9.0x 1-year forward P/E multiple to our FY2017E, EPS estimate of
Rs72/share to arrive at a price target of Rs649/share. Given the limited upside, we
maintain our Neutral rating on the stock.

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