Nirmal Bang research report on Power Mech Projects Ltd. Power Mech Projects (PMP) posted 4QFY16 revenues of Rs3.9bn, up 5% YoY, but 9% below our estimate of Rs4.2bn owing to lower billing in ETC segment. With the shift in revenue mix towards O&M segment, raw material costs, as a percentage of sales, fell 850bps YoY to 70.5% while staff costs rose 730bps YoY to 15.2% (up 102% YoY at Rs589mn). Consequently, while gross margin expanded 850bps YoY to 29.5%, EBITDA margin expansion was capped at 140bps YoY to 12.6%, leading to an 18.6% YoY rise in EBITDA to Rs490mn in 4QFY16, 14% below our estimate. In FY16, gross margin rose 400bps YoY to 26.3% while EBITDA margin increased 100bps YoY to 13.2%.PMP has healthy financials with FY18E RoCE at 23%, fixed-asset turnover at 4x, operating margin profile at ~13% and strong scale-up opportunities in ETC as well as O&M segments. With a strong order book of Rs35bn (2.5xFY16 revenues) and strong tender pipeline, we expect 17%/24% consolidated revenue/PAT CAGR, respectively, over FY16-FY18E. Considering healthy financials and growth metrics, PMP stock trades at an attractive valuation of 7.5xFY18E earnings.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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