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 |
(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.
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