The credit ratings agency revised its rating on the long-term bank facilities of the company worth Rs 400 crore to "CARE A-" from "CARE A" while maintaining ‘stable' outlook on the same. Further, it revised its rating on the long term/short term bank facilities of Power Mech Projects to "CARE A-; Stable / CARE A2+” from “CARE A; Stable/CARE A1."

CARE Ratings said that the revision in the ratings assigned to the bank facilities of Power Mech Projects (PMPL) considers the subdued financial performance resulting in operational loss and cash loss during 9MFY21 (refers to the period April 20 to Dec 20) due to COVID-19 pandemic.

However, the rating continues to derive strength from the extensive experience and established track record of the promoters in erection, testing and commissioning (ETC) business segments for around two decades, long standing relationship with clients, healthy order book position and revenue diversification with increased focus on high margin operations and maintenance (O&M) segment, comfortable capital structure and adequate liquidity position.

The ratings are, however, constrained by the deterioration in the operating income and profitability during FY20 (refers to the period April 01 to Mar 31), working capital intensive nature of business with elongated collection period, high exposure towards contingent liabilities, continued reliance on subcontracting, margins being susceptible to raw material prices and competition, impact of COVID-19 pandemic and inherent challenges associated with the construction sector.

Improvement in total operating income with sustainable profit margins and timely execution of outstanding order book and collection of receivables including retention money within 120 days are Factors that could lead to positive rating action.

However, consistent decline in scale of operations and contraction in the profitability margins from the current levels and any further deterioration in the capital structure or liquidity in the company could lead to a rating downgrade, CARE Ratings said.

Power Mech Projects operates as an engineering and construction company, which provides erection, testing and commissioning (ETC), civil and operation and maintenance services for power projects. On a consolidated basis, the company's net profit declined 91% to Rs 3.15 crore on 6.8% fall in net sales to Rs 508.49 crore in Q3 FY21 over Q3 FY20.

The scrip rose 2.13% to Rs 558.35 on the BSE. It traded in the range of 556.85 and 570.80 so far during the day.