IPO funds to be used as working cap, repay debt: Power Mech

The Rs 273 crore initial public offer (IPO) of Power Mech Projects opened for subscription on Friday. The company intends to use Rs 135 crore of this as working capital and to repay long–term loans, Kishore Babu, the company’s CMD told CNBC-TV18. The company is into erection, testing and commissioning of thermal power plants. It also does maintenance of power plants. Post the IPO, the company will maintain its earlier debt to equity ratio between 0.5 and 0.6 percent. Babu said: “Our clients will not hold our money at any cost for more than 60 days because we are doing the core technical erection work at site and it is very essential for all our clients to release our payments then and there.”The debt to equity ratio is the proportion of shareholder equity and debt used to finance the assets. NTPC, the company’s biggest client, accounts for 27 percent of the total revenue. The company is working currently on three NTPC projects, he said. Other clients include Adani and Reliance. The total order book of the company stands at Rs 2,400 crore, which will be executed in the next two years, Babu said.Below is the transcript of Kishore Babu’s interview with Latha Venkatesh & Ekta Batra on CNBC-TV18.Ekta: Explain to us what exactly your business does at this point in time and how much do you get from whichever segments you do operate in?A: We basically concentrate our business in powers sector - erection and testing commissioning of Thermal power plants. Mainly our operation is boilers and turbines and a little bit of balance of plant (BOP). Also we are in to the operational maintenance of the power plants. Today, we are covering a spectrum of around 32,000 megawatts. In 21 locations, we are doing the operation maintenance of the power plants. We have another business model Civil which we have limited only to the power plant area where we are doing the boiler and turbine erection works.Latha: This 32,000 megawatts is in operation and maintenance?A: Yes, operation and maintenance.Latha: How many megawatts of power are you doing your erection and testing?A: We have a order book of around Rs 2,400 crore that will be completed in next 30-35 months. The time cycle is around two and a half to three years. Exactly if you say per megawatts, it will be around 15,000 megawatts order book in hand as per our erection testing is commissioning.Latha: You are raising a lot of money - Rs 270 crore approximately that will be about one third of your post issue market cap. What will you do with this money? Does it come to the company at all?A: This company is comprising of- one is offer for sale; 50 percent is offer for sale and 50 percent is fresh issue coming into the company. Whatever is coming into the company nearly Rs 135 crore, which we are going to use for the working capital and repayment of some long-term loans and also for some corporate purposes like to have the company steady growth in next three to four years. Ekta: You have managed to maintain a comfortable debt to equity ratio we understand. How have you managed to maintain it and with the proceeds how much are you planning to pull it down further by?A: Right now we have very comfortable debt to equity ratio between 0.5 and 0.6. This will maintain in future also because our main working capital cycle is up to 50-60 days and that is our main strength. Our clients will not hold our money at any cost for more than 60 days because we are doing the core technical erection work at site and it is very essential for all are clients to release our payments then and there.Latha: Your outstanding debtors for the last available result that you have given have risen by 31 percent. That is higher than your topline growth. Your topline grew by 13 percent but debtors grew by 31 percent?A: Debtors include the retention money because when we do the work there is some retention.Latha: Net of retention money - how much will it be?A: It will be only around Rs 90 crore.Latha: Percentage terms how much will that be? We calculated it at 31 percent including retention money may be. A: Retention money is very high – at around Rs 190 crore that we will be releasing in a phased manner.Latha: Your client list also is a bit skewed. The top five guys are giving you about 55 percent of the business and one top client is giving you 27 percent of your revenue. Who is this top guy and can you be sure of him?A: We are working with NTPC in three plants - one plant Power Mech presence is there. We are also working with the major mega independent power producer (IPP) players like Ambani, Reliance, Adani that is in Sasan we are working and also we are working in Tata’s. The first UMPP which is in Mundra - we are doing the operation maintenance. Also, our contribution was there for erection also.Latha: Then why is Motilal Oswal moving out? A: It is a fund and they have to return it.Latha: Moving down from 20 percent to two percent that is quite a sell down.A: They had brought the fund from IL&FS or some and they have to exit. The fund time is over that is why they are exiting. Otherwise they are quite happy. They came when the company valuation was around Rs 200 crore. Now, they are going when the company valuation is at around Rs 800 crore. Only the company has grown; the multiple has not grown. That time also they invested at 10 multiple. Now they are exiting at 10 multiple. That is why whatever the growth has happened it is only in the company.