Power Mech best smallcap pick, valuations look quite interesting: Girish Pai.

In a chat with ET Now, Girish Pai, HoR, Nirmal Bang Institutional Equities, talks about his top smallcap idea.

ET Now: What are your top midcap bets? What are the top two broader market ideas that you guys at Nirmal Bang are advocating?

Girish Pai: There is a stock called Power Mech Projects, which got listed about a couple of months back.

This is a very interesting smallcap idea. The company has a market capitalisation of around Rs 1,000 crore. It is in the power infrastructure services area. It is neither an equipment manufacturer, not is it an EPC player.
It is into what I would call as erection, testing and commissioning ( ETC) services. The company is a leader in that market. It has about 38 per cent of the market share. Out of 21 super critical power projects that have been set up, 16 have been done by Power Mech.

Two of the operational UMP pieces that have been set up, have been done by Power Mech. So it is a leader in that space. ETC segment constitutes two-thirds of the company's overall revenues.

The company has another interesting business - operations and maintenance services - which constitutes 20 per cent of the company's revenues. But that particular piece is growing much faster than the ETC business and has got almost twice the Ebitda margins of that of ETC business. Lastly, the company is into civil works.

So the interesting part is that if you look at the entire ecosystem of power, it is stressed at this point in time. Here you have a player which is clocking about 25-30 per cent return on capital (ROC) in this kind of environment. So one should give credit to that and we think that earnings can grow at 30 per cent. The most interesting thing about the stock is its valuations, which is at seven times FY17 EPS.