Prefer Power Mech Projects on fairly decent valuations: Girish Pai

In an interview with ET Now, Girish Pai, HoR, Nirmal Bang Institutional Equities, talks about the reasons why he prefers recently listed Power Mech Projects.

ET Now: Why do you like Power Mech? What is the rationale behind this pick?

Girish Pai: Power Mech is in the power infrastructure services space. The entire power ecosystem is going through a substantial amount of pain.

This is a company which has been delivering stellar return on equity (ROE). In the last few years, the company has been delivering return on capital (ROC) in upwards of 25 per cent as it in the services space. It is not a player which generates power.

It is not an equipment manufacturer. It is more like a services provider. It provides what is called erection, testing and commissioning services, in addition to operations and maintenance services. In both these areas, the company has got a fairly large market share. We think that as things improve on the power front, this particular company will do well especially in the operations and maintenance side, where we see operating margins doubling for the ETC business.

So we think that the revenue growth for this company should be somewhere around 17 per cent ( CAGR) over the next three years. And we think earnings for this company can grow at 39 per cent. The most interesting aspect is the valuations, which stands as 7 times FY17 earnings per share. With those kind of financial matrix and the kind of growth expected, we think it is a fairly decent midcap bet.