Thermax : Product Order Revives; Maintain BUY:; Emkay

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Thermax

Product Order Revives; Maintain BUY

BUY

CMP: Rs 796                                       Target Price: Rs 943

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n     Stellar performance – (1) Revenues up 60% yoy to Rs10.9 bn, (2) EBITDA up 62% yoy to Rs1.3 bn with stable margins at 11.8% (3) PAT up 65% yoy to Rs895 mn

n     Strong performance in both segments - Energy up 71% yoy and Environment up 51% yoy - driven by execution on orders received in last 6 quarters

n     Continued order inflow momentum, driven by product orders which is encouraging sign- order inflows of Rs14.1 bn orders backlog of Rs72.8 bn

n     Maintain earnings estimates and ‘BUY’ rating with target price of Rs943/Share – do not rule our upgrades in inflows and earnings

Stellar performance yet again – Revenues up 60%, Net profits up 65% yoy
Thermax, best proxy to private sector capex in India, reported good performance yet
again in Q2FY11 (both revenues & net profit grew by +60%) – driven by execution on
orders received in last 6 quarters. Standalone revenue growth was robust at 60.4% yoy
to Rs10.9 bn - led by both Energy (+70.9% yoy) and Environment (+50.6% yoy).
Operating profits grew by 62.3% yoy to Rs1286 mn with stable operating margins at
11.8%. Led by strong operational performance, net profit growth was robust at 65.4%
yoy to Rs895 mn – highest growth in past 14 quarters.
Strong performance in both Energy (+71%) and Environment (+51%)
Considering order inflows for last 6 quarters, execution picked-up in the current quarter.
(1) Energy segment - revenues grew by 70.9% yoy to Rs8.9 bn and EBIT grew by
47.3% yoy to Rs0.9 bn (2) Environment segment - revenues grew by 50.6% yoy to
Rs2.5 bn and EBIT grew by 46% yoy to Rs0.3 bn. Energy reported 160 bps yoy decline
in EBIT margins to 10.2% - attributed to higher proportion of EPC orders.
Pick-up in short cycle products order – very encouraging sign
Thermax continued its order inflow momentum, infact driven by product orders – which
is an encouraging sign. Thermax secured orders worth Rs14.1 bn –Energy at Rs11.3 bn
or 80% and Environment at Rs2.8 bn or 20%. Key feature in Q2FY11 – is pick-up in
short-cycle product orders from power cogen, cement, steel, etc- which could influence
near term earnings. Thermax has bagged 59% of FY11E target order inflows in
H1FY11. Its consolidated order book stood at Rs72.8 bn, equivalent to 1.8X revenues.
Retain ‘BUY’ rating – reiterate as one of preferred companies
Pick-up in short cycle product orders for Thermax reaffirms our view mentioned in “ECI
Strategy – Changing Gears” – that Capital Good companies would benefit from uptick in
industrial capex over next 3-5 quarters. Concrete movement in industrial capex
beginning H2FY11E could drive upgrades in order inflows and earnings. We maintain
earnings estimates and retain BUY rating with target price of Rs943/Share.