Power Mech Projects Q1 FY25 Concall Highlights: Strong Growth Driven by Robust Order Book & MDO Outlook
Power Mech Projects Limited (POWERMECH) delivered a strong performance in the first quarter of FY25, with revenue and profitability exceeding the previous year's figures. The company's order book remains robust, and its management expressed confidence in achieving a revenue growth of 25-30% for the full year, fueled by a healthy pipeline of opportunities across various segments, particularly in the power sector and railways. The company's two key mining projects – the KBP and Tasra projects – are progressing, with initial ramp-up expected in the coming quarters, although the washery capacity issues at the Tasra project impacted Q1 performance.
a. Financial Performance:
Power Mech's total income for Q1 FY25 surged to INR1,017 crores, representing a 16% year-on-year increase from INR871 crores in the same period last year. EBITDA for the quarter touched INR123 crores, signifying a 17% YoY growth compared to INR105 crores in Q1 FY24. Net profit for the quarter stood at INR60 crores, demonstrating an 18% YoY rise from INR51 crores. EBITDA margin expanded to 12.1% in Q1 FY25, compared to 12% in the corresponding period last year.
The company's revenue mix saw a significant shift. The civil business, including railway, mining, and water distribution, showcased a 13% YoY increase, contributing INR557 crores to the total revenue. In contrast, mechanical business revenue declined by 36% year-on-year to INR102 crores. Operations and maintenance (O&M) continued to be a major driver, with revenue jumping 52% to INR341 crores. The electrical segment remained relatively stable.
b. Operational Updates:
Power Mech's order backlog at the end of the last quarter was INR17,302 crores. The mechanical backlog order grew by 2.1% to INR6,508 crores, while the civil order backlog increased by 2.3% to INR7,995 crores. The company's order booking for Q1 FY25 stood at INR1,059 crores. Mr. S.K. Ramaiah, Director, Business Development, highlighted that while some tenders were delayed due to elections, the order booking has gained traction since then.
The company secured orders worth INR1,746 crores in the first quarter, and the unexecuted order book as of August 12, 2024, stood at INR18,115 crores, excluding two major development orders (MDOs). The company's debt levels remained under control, with a gross debt of around INR581 crores and net debt of INR40 crores as of June 30, 2024.
c. Management Insights:
Mr. N. Aravind, CFO, emphasized the improvements in the overall margin profile and the stability expected from the O&M and MDO business in terms of revenue generation and margins. He also pointed out the impact of delays in projects received during Q3 and Q4 of FY24 on overall project execution and related costs.
Mr. Rohit Sajja, President, Business Development and Operations, highlighted the positive developments in the MDO projects, including the receipt of forest land clearance for the KBP project and the gradual increase in mining output from the Tasra project despite initial setbacks. He also expressed confidence in the growth trajectory of overseas O&M business, driven by new client wins in countries like Qatar and Saudi Arabia.
Mr. S.K. Ramaiah, Director, Business Development, during his insights, highlighted that the overall business environment has improved post elections and that execution cycles are picking up. He also discussed the company's strategy to maintain a robust order book, focusing on power sector projects, including those from NTPC, BHEL, and Adani. He highlighted the substantial order booking opportunities in the power sector driven by increased installed capacity targets and also discussed the growing opportunities in the non-power sector, including railways, mining, and infrastructure.
d. Strategic Initiatives and Future Plans:
Power Mech Projects is actively pursuing significant opportunities in the power sector, focusing on projects related to NTPC, BHEL, and Adani. Mr. Ramaiah mentioned the potential of INR20,000-25,000 crores of opportunities in the power sector, and he also emphasized the company's focus on O&M and the rising opportunities in railway, road, and infrastructure construction.
The company is also tracking opportunities in the steel sector, including those from NMDC and the Steel Authority of India. Non-power segments like mining and industrial projects are also actively being explored. The management is pursuing opportunities related to the BharatNet project, leveraging its capabilities in optical fiber cable laying and network development.
e. Q&A Session Highlights:
EBITDA Margin: Discussions revolved around segment-wise EBITDA margins, with higher margins observed in the water, civil, and O&M segments and relatively lower margins in industrial construction and power transmission and distribution. The delay in project execution and cost-related factors contributed to the lower margins in some segments.
Power Sector Opportunities: Concerns were raised about the dependence on BHEL as the primary vendor for the majority of the new power projects. Management acknowledged that while BHEL has the capacity, challenges related to execution timelines and financial aspects have created space for other players like Thermax and GE to potentially become involved.
MDO Projects: Questions focused on the impact of retrospective mining tax on the MDO projects. Management reassured that the company is not the owner of the MDOs and that the tax impact is not anticipated to affect offtake or revenue. The timeline and progress of the Adani Mundra FGD project and the Tasra project were also discussed.
Order Inflow: The company's guidance for order inflow in FY25 is INR11,000 crores. The breakdown of this inflow across segments, including power, O&M, and infrastructure, was explored during the Q&A.
Conclusion:
Power Mech Projects’ Q1 FY25 performance demonstrates strong operational and financial growth. The company's management is optimistic about the future, supported by a substantial order book and a healthy pipeline of opportunities across diverse segments. The execution of MDO projects is gaining traction and expected to contribute to revenue and margins in subsequent quarters. The power sector, particularly the opportunities related to NTPC, BHEL, and Adani, are expected to be a significant growth driver in the near term. However, the management cautioned about the potential impact of monsoon on execution in the second quarter. Overall, Power Mech Projects seems well-positioned for sustained growth in the coming quarters.
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