Power Mech Projects Ltd. IPO Review

 Issue Highlights

Issue Period	7/8/2015-11/8/2015
Price Band	Rs. 615 -640
Issue Size (Rs.)	Rs.260.4 -273.21 crore
Issue Size (Volume)	42,69,000
Minimum Bid Quantity	20 shares
Maximum Retail Subscription	Rs. 1,92,000 (15 lots)
Industry	Power Infrastructure
Listing	BSE,NSE
Registrar	Karvy Computershare

Issue Details

(1)    Fresh issue: 21,28,000

(2)    Offer for sale:  21,41,000

(3)    Outstanding shares prior to the issue: 1,25,82,764

(4)    Outstanding shares after the issue: 1,47,10,764

Company Profile

Power Mech is one of the leading power-Infrastructure Company which provides ETC-BTG (erection, testing and commissioning of boilers, turbine and generators), BOP, civil works and O&M (operations & Maintenance) services to power sector and other allied industries like petrochemical, steel and cement.

For FY 14, erection works constituted around 72 % of the total operating revenue. The company is presently engaged in more than 100 erection works projects across India and abroad.

Risks

1.       This Business is highly working-capital intensive and requires seamless cash flows for debt- repayments and for its working capital requirement. Maintaining working capital requirements often results in  further indebtedness

2.       Industry is highly competitive and international competitors enjoys better access to financial and other resources

3.       Higher interest regime is not favorable for the company

4.       OCF to sales ratio is miniscule at .02

5.       Concentrated client base is a threat

Objects of the Issue

(1)    Repayment of the borrowing	Rs. 24.5 crore
(2)    Towards working capital requirement	Rs. 120 crore
(3)    General Corporate Purposes	NA

Financial Profile

Parameter	FY 14 #
P/E  ##	13.8
P/B ##	3.4
PEGProfit  ##	.4
NPM (%)	5.62
ROE (%)##	24.9
ROCE (%)	33.1
OCF/Sales	.021

# Using Consolidated statements at upper price

@ annualized data

## post issue OS shares

Inference

Though, prima facie fundamentals of this company seem satisfactory but this company has a thin net-profit margin and there lies a miniscule cash flow in comparison to its sales.

Except L&T, other peers like BGR energy, Sunil Hitech and Techno Electric all trade at a lower price to earnings multiple than Power Mech. L&T being a diversified company justifies its higher earnings multiple.

This company works in a highly capital intensive industry and maintaining its working capital at an optimum level- is a perquisite and hence this issue is being floated.

Order book of this company is robust but cancellations and variations too keep on taking place and the same could reduce the size of the order book.

The company mainly caters the thermal power sector and power sector is presently facing a slowdown and as a significant portion of the company’s revenue comes from government entities and as such matters are subjected to changing government policies, red-tapism, corruption, routine reviews and audits etc,, there lies  high compliance costs and sometimes payment gets delayed or disallowed.

I did not find any reason to delve deeper into this issue as in the short run this issue may not be a viable one and in the medium to long run its future prospects are not that bright.

I better skip this issue.