ICICI Securities has started coverage on Power Mech Projects with a 'Buy' rating and a target of Rs 2,950. While the company reported 26% year-on-year revenue growth in Q1 FY27, investor attention is on margin compression caused by higher operational costs. The brokerage highlights the company's strong order book as a key growth driver, though execution risks remain.
ICICI Securities has initiated coverage on Power Mech Projects with a 'Buy' rating and a target price of Rs 2,950 per share. This development comes as the stock currently trades around Rs 2,505, reflecting recent market fluctuations that have followed the company's latest quarterly results.
Power Mech Projects reported a steady performance in the first quarter of fiscal year 2027, with consolidated revenue growing by approximately 26% compared to the same period last year. Despite the revenue growth, profitability faced challenges. The company's operating margin, measured as EBITDA margin, contracted to roughly 10.8% during the quarter, down from about 14% a year earlier. This pressure on profit margins has been a point of concern for some investors and was a factor in recent stock price movements.
Management has attributed the margin contraction to a combination of higher material costs, increased royalty payments, and higher expenses related to overburden removal—the process of clearing soil and rock to access minerals. These are largely linked to the company’s Mine Developer and Operator (MDO) projects. While these costs have temporarily impacted the bottom line, the company has maintained its full-year guidance, suggesting that these margin pressures are expected to be temporary.
The company’s long-term outlook remains supported by a significant order backlog, which stands at approximately Rs 55,398 crore. This total includes both traditional projects and MDO contracts. The MDO segment is a strategic focus area for Power Mech Projects, but it also carries inherent risks. Investors should keep in mind that MDO projects involve complex operational execution and can lead to short-term volatility in profit margins as the project mix shifts and capacity is ramped up.
ICICI Securities remains positive on the company’s ability to secure new orders, citing a robust industry pipeline for thermal power projects. For shareholders, the most important factors to monitor in the coming quarters will be whether the company can successfully normalize its margins as promised and how efficiently it executes its large MDO backlog. Any further cost-driven margin pressure or delays in project execution could influence how the market values the stock, given the current competitive and operational environment.