Power Mech Projects: ICICI downgrades stock on expensive valuations

ICICI on Monday said Power Mech Projects Ltd reported a robust Q4 print and that its outlook was strong. Yet, it downgraded the stock to 'Hold' from 'Buy' on expensive valuations. Even as the brokerage upped its target price on the stock to Rs 2,986 from Rs 2,536, it hinted at a 4 per cent potential downside on the stock. 

Power Mech shares are up 73 per cent from March low. On Monday, the scrip was trading at Rs 3,115.10, up 0.14 per cent.  

"Given the expensive valuations, we downgrade the stock to HOLD (from Buy) with a revised TP of Rs 2,986 (Rs 2,536 earlier)," ICICI Securities said.

The brokerage called Power Mech's Q4 numbers strong, with revenue coming in at Rs 1,850 crore (up 42 per cent) and Ebitda at Rs 220 crore (up 44 per cent) bringing profit to Rs 130-odd crore (up 54 per cent). Power Mech reported order inflow (OI) of Rs 6,500 crore – the lowest in four years. 

Power Mech reported OI was against guidance of Rs 10,000 crore, due to softness in thermal sector. The company has eliminated FGD orders worth Rs 43,00 crore from its OB (non-moving orders). Order book stood at Rs 14,600 crore, excluding MDO orders worth Rs 39,600 crore at FY25 end.

"The softness in OI was due to a slowdown in sub-contracting awards across thermal sector. However, the outlook for FY26 appears
promising as 1) FY25 was marked by large thermal awarding to BHEL and L&T, and 2) growing opportunities in nuclear power space. We expect these companies to in-turn tender out BoP orders in FY26," ICICI Securities said. 

The brokerage also expects Power Mech's MDO business to aid in revenue accretion in H2FY26E with operations at Tasra coal mine set to commence in FY26. 

"Power Mech eyes a robust pipeline in thermal EPC, as large thermal equipment and EPC players including BHEL and L&T continue to strengthen their thermal orderbook, which adds to Powe Mech’s opportunity as a subcontractor. Given the tailwinds in thermal capacity addition over medium term and lower competitive intensity in thermal EPC/BoP, we expect strong thermal order inflow to continue for Power Mech for 2-3 years," it said.