Stock Market Update on Thermax for 1QFY2012

Stock Market  Update on Thermax for 1QFY2012 with a Neutral recommendation

Thermax reported better-than-expected results for 1QFY2012. The company registered 32.2% yoy growth in its top line to `1,044cr, higher by 16% from our expectation of `901cr. Led by strong top line, EBITDA and PAT also reported healthy growth of 18.5% and 20.7%, respectively. Order intake for the quarter was healthy at `1,688cr, while order backlog at the end of the quarter stood at `6,804cr, providing revenue visibility for the next 4–5 quarters. We remain Neutral on the stock.

Strong execution drives revenue and profit: For 1QFY2012, the company reported revenue growth of 32.2% yoy to `1,044cr (`790cr) mainly on the back of strong execution of its order book. The major upside came for the energy segment, which reported impressive growth of 32.2% yoy. EBITDA margin witnessed an expected contraction of 127bp on the back of high raw-material costs. Other operating metrics, viz. interest expenses, depreciation and other income, remained flat yoy, which lifted PAT by 20.7% yoy to `80cr yoy (`66cr).

Outlook and valuation: Thermax trails its fortune towards industrial capex, especially in sectors such as metals, cement and oil and gas, which form its mainstream arena for offering products and solutions in captive power and heating solutions. However, the tough macro environment does not augur well for the company – elevated interest rates remain a concern given the cascading impact on investments and, thereby, lower order releases. Muted demand in terms of lower inflows will directly impact the company’s future growth trajectory. The stock trades at 17.4x and 14.9x FY2012E and FY2013E EPS, respectively.
In the backdrop of unfavorable investment climate that weighs heavily on the stock, we continue to remain Neutral on the stock.