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THERMAX
Beats estimates; near-term expectations rise
Thermax (TMX) reported 66% and 77% Y-o-Y growth in revenue and PAT,
respectively, in Q3FY11 on back of strong execution. New orders during the quarter
remained muted with a 20% Y-o-Y decline to INR 12.3 bn, which for 9mFY11
remained muted at INR 44 bn. Despite concerns over dip in orders in 9mFY11, we
expect new order growth to be decent in FY11.
Profit beats estimate
Led by execution of large projects, TMX reported revenue much ahead of our and
consensus estimates, which led to strong EBIDTA growth with stable margins.
However, led by higher other income, lower depreciation and tax expenses, PAT
margins grew 50bps to 8.1%. For 9mFY11, the company reported some pressure
on EBIDTA margins led by higher input cost, while PAT margins grew 20bps to
8.2% led by lower growth in depreciation and tax expenses.
Consolidated order book flattish sequentially at INR 71.5 bn
Though execution remained strong for 9mFY11, growth in order book was
flattish at INR 71.5 bn Q-o-Q; it grew 27% Y-o-Y for 9mFY11. While the
company largely witnessed slow down in LPP (large power plant) order
finalisation, base orders from medium and small power plants maintained a
healthy clip. We maintain our new order assumption of INR 70 bn for FY11,
implying 21% Y-o-Y growth for FY11E.
Super critical JV: On track
TMX has already started developing the site for the upcoming super critical
boilers plant with Babcock-Wilcox (US) and has already placed orders for major
equipment. The company intends to start operations by September 2012 and is
targeting orders for this new plant w.e.f. September 2011.
Outlook and valuations: Healthy growth; maintain ‘BUY’
We expect TMX to continue reporting strong profit and expect a PAT CAGR of
40% (FY10-12E) with core RoE at ~31.5%. While LPPs in the past few quarters
have faced finalisation delays, we do not foresee a great risk to the company’s
overall revenue visibility and maintain our growth assumptions for FY11 and
FY12 expecting better order inflows in the coming quarter. We maintain ‘BUY’
recommendation and ‘Sector Outperformer’ rating. The stock currently trades
at a PE of 21x and 16x on FY11E and FY12E, respectively.
Con call highlights
Input cost and forex risk: The top management indicated that the current order book
is largely covered as far as sourcing of specialty steel etc., is concerned. The company
has also taken forward cover to hedge its foreign currency receivables. However, around
15-18% of the current order book remains exposed to normal steel price risk on account
of structural, steel sheets, aluminum, among others. Majority (>90%) of its current
order book comprises fixed price contracts.
Captive power industry reviving: Despite absence of large ticket orders from the
power division, Thermax has been witnessing a healthy traction in orders from steel and
cement entities like Jindal, Bhushan Steel, Ultratech for power plant orders of medium
size. Thus, industry up to 100 MW, where Thermax is a clear leader, in boilers has seen
some revival.
Standalone segmental analysis
Energy: Strong execution in certain large value orders helped the company post strong
77% Y-o-Y growth in energy sales. EBIT margins remained intact at 10.8% for Q3FY11;
however, they declined 52bps Y-o-Y for 9mFY11. Mix of energy sales maintained at 79%.
Environment: While revenues grew a healthy 44% Y-o-Y for Q3FY11, margins came off
140bps plus to 13.6% for this division, which on 9mFY11 basis dipped 65bps to 12.8%.
Company Description
TMX provides solutions in the energy and environment space. The energy business
contributes ~80% to revenues, whereas the environment business contributes ~20%.
Further, 20% of revenues are from products and 80% of revenues are from projects. The
company’s market share for chillers is 90%, 35-38% for boilers and heaters, 8% for
water and waste water, 35% for chemicals, and ~60% for air treatment divisions.
Investment Theme
While we believe TMX’s long-term story remains strong, driven by investments in
corporate capex and captive power and power generation in the Indian economy. We
believe scale up in the utility range boilers is likely to improve revenue visibility and
valuations of TMX over the long term. Further the scalability of the business model is
likely to improve significantly with the foray in the utility boiler segment.
Key Risks
The execution of large projects in the utility boiler space is likely to test the project
management skills of TMX. We believe any slip in execution of large projects may impact
the return ratios negatively for the company.
The execution of large utility projects entails, higher working capital requirement, which
is significantly different from the company’s current business model. Over the year one
of the key positives of TMX’s business model has been the ‘negative working capital’
cycle.
Higher key policy rates, by way of monetary policy actions, are likely to delay order
accretion. This, in turn, could impact our revenues and earnings estimates negatively.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
THERMAX
Beats estimates; near-term expectations rise
Thermax (TMX) reported 66% and 77% Y-o-Y growth in revenue and PAT,
respectively, in Q3FY11 on back of strong execution. New orders during the quarter
remained muted with a 20% Y-o-Y decline to INR 12.3 bn, which for 9mFY11
remained muted at INR 44 bn. Despite concerns over dip in orders in 9mFY11, we
expect new order growth to be decent in FY11.
Profit beats estimate
Led by execution of large projects, TMX reported revenue much ahead of our and
consensus estimates, which led to strong EBIDTA growth with stable margins.
However, led by higher other income, lower depreciation and tax expenses, PAT
margins grew 50bps to 8.1%. For 9mFY11, the company reported some pressure
on EBIDTA margins led by higher input cost, while PAT margins grew 20bps to
8.2% led by lower growth in depreciation and tax expenses.
Consolidated order book flattish sequentially at INR 71.5 bn
Though execution remained strong for 9mFY11, growth in order book was
flattish at INR 71.5 bn Q-o-Q; it grew 27% Y-o-Y for 9mFY11. While the
company largely witnessed slow down in LPP (large power plant) order
finalisation, base orders from medium and small power plants maintained a
healthy clip. We maintain our new order assumption of INR 70 bn for FY11,
implying 21% Y-o-Y growth for FY11E.
Super critical JV: On track
TMX has already started developing the site for the upcoming super critical
boilers plant with Babcock-Wilcox (US) and has already placed orders for major
equipment. The company intends to start operations by September 2012 and is
targeting orders for this new plant w.e.f. September 2011.
Outlook and valuations: Healthy growth; maintain ‘BUY’
We expect TMX to continue reporting strong profit and expect a PAT CAGR of
40% (FY10-12E) with core RoE at ~31.5%. While LPPs in the past few quarters
have faced finalisation delays, we do not foresee a great risk to the company’s
overall revenue visibility and maintain our growth assumptions for FY11 and
FY12 expecting better order inflows in the coming quarter. We maintain ‘BUY’
recommendation and ‘Sector Outperformer’ rating. The stock currently trades
at a PE of 21x and 16x on FY11E and FY12E, respectively.
Con call highlights
Input cost and forex risk: The top management indicated that the current order book
is largely covered as far as sourcing of specialty steel etc., is concerned. The company
has also taken forward cover to hedge its foreign currency receivables. However, around
15-18% of the current order book remains exposed to normal steel price risk on account
of structural, steel sheets, aluminum, among others. Majority (>90%) of its current
order book comprises fixed price contracts.
Captive power industry reviving: Despite absence of large ticket orders from the
power division, Thermax has been witnessing a healthy traction in orders from steel and
cement entities like Jindal, Bhushan Steel, Ultratech for power plant orders of medium
size. Thus, industry up to 100 MW, where Thermax is a clear leader, in boilers has seen
some revival.
Standalone segmental analysis
Energy: Strong execution in certain large value orders helped the company post strong
77% Y-o-Y growth in energy sales. EBIT margins remained intact at 10.8% for Q3FY11;
however, they declined 52bps Y-o-Y for 9mFY11. Mix of energy sales maintained at 79%.
Environment: While revenues grew a healthy 44% Y-o-Y for Q3FY11, margins came off
140bps plus to 13.6% for this division, which on 9mFY11 basis dipped 65bps to 12.8%.
Company Description
TMX provides solutions in the energy and environment space. The energy business
contributes ~80% to revenues, whereas the environment business contributes ~20%.
Further, 20% of revenues are from products and 80% of revenues are from projects. The
company’s market share for chillers is 90%, 35-38% for boilers and heaters, 8% for
water and waste water, 35% for chemicals, and ~60% for air treatment divisions.
Investment Theme
While we believe TMX’s long-term story remains strong, driven by investments in
corporate capex and captive power and power generation in the Indian economy. We
believe scale up in the utility range boilers is likely to improve revenue visibility and
valuations of TMX over the long term. Further the scalability of the business model is
likely to improve significantly with the foray in the utility boiler segment.
Key Risks
The execution of large projects in the utility boiler space is likely to test the project
management skills of TMX. We believe any slip in execution of large projects may impact
the return ratios negatively for the company.
The execution of large utility projects entails, higher working capital requirement, which
is significantly different from the company’s current business model. Over the year one
of the key positives of TMX’s business model has been the ‘negative working capital’
cycle.
Higher key policy rates, by way of monetary policy actions, are likely to delay order
accretion. This, in turn, could impact our revenues and earnings estimates negatively.
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