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“BUY” This Small Cap Stock With A Target Price of Rs. 1,163 Says Geojit

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Geojit Financial Services Limited, a leading brokerage firm has placed a buy call on the stock of Power Mech Projects Limited with a target price of Rs. 1,163. The stock was trading at a market price of Rs.936 at the time of the brokerage's buy call, and the brokerage forecasted a 24 percent increase in the next 12 months. On the other hand, the stock is now trading on the NSE at a market price of Rs. 923. Power Mech Projects Limited, headquartered in Hyderabad, is a prominent infrastructure-construction company with a worldwide footprint and a reputation for offering a wide range of services in the power and infrastructure markets.

 

Q2FY22 results of Power Mech Projects Ltd

Q2FY22 results of Power Mech Projects Ltd

According to the brokerage the company's "Q2FY22 revenue grew by 56.2% YoY to Rs539cr, however, it was below our estimate as the execution was largely impacted due to the rainy season. While Civil and Erection segments witnessed strong execution with a growth of 121% YoY/117% YoY. The other verticals like O&M and Electrical division registered a growth of 29% & 21% respectively. Non-power segment continues to remain the growth driver for the company."

The brokerage has also said that "The management expects the execution to pick-up in H2FY22 and has guided to achieve a top-line of Rs2,600cr in FY22. Since most of the projects are in the execution stage, we expect revenue to grow at a CAGR of 28% over FY21-FY23E."

Geojit has reported in its research report that "During the quarter EBITDA margin improved to 10.7% YoY (Vs. -12.3% in Q2FY22) on account of 1742bps YoY improvement in gross margin to 29.1%. Given an expectation of higher execution in H2FY22, the management highlighted that EBITDA margin to normalize to 12.5 to 13% in FY22. Additionally, the shift in revenue mix to high margin O&M business and growth in non-power business also supports the margin estimate. We, therefore, improved the margin estimate to 12.1%/12.5% for FY22/FY23 respectively. The PAT stood at Rs 27cr (Vs. Rs55cr loss in Q2FY21)."

Buy Power Mech Projects Ltd With A Target Price of Rs. 1,163
 

Buy Power Mech Projects Ltd With A Target Price of Rs. 1,163

According to the brokerage "Despite the company not bagging any orders in Q2FY22, the order book remains robust at Rs15,809cr (includes MDO orders of Rs9,294cr). The total order book is 6.5x trailing twelve months revenue which provides strong revenue visibilities in the coming years. The management is expected to add Rs 3,500cr to Rs4,000cr of orders in FY22. The company is looking for opportunities worth Rs10,000cr in energy, infra, metals, railway, mineral sectors. The management hopes to finalise two major projects on mineral processing EPC orders from NMDC in the coming quarters."

The brokerage in its research report has said that "With a strong order book, diversification to non power segment and increased focus in the O&M segment, we expect the company to be in its growth trajectory in FY22. We, therefore, revise our rating to Buy and value the stock at a P/E of 7.5x FY23E EPS."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Monday, November 29, 2021, 9:01 [IST]
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