Buy Thermax No Speed Breakers; target Rs943:: Emkay

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Thermax

No Speed Breakers; Maintain BUY

BUY

CMP: Rs 664                                       Target Price: Rs 943

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n     Thermax reports strong 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     Order inflows at Rs12.3 bn in Q3FY11 – implicit order inflows requirement for Q4FY11E at Rs10.3 bn or -28% yoy – which can be achieved

n     Maintain earnings estimates of Rs32.4/Share and Rs39.0/Share for FY11E and FY12E – Maintain ‘BUY’ rating with target price of Rs943/Share

No speed-breakers – Revenues up 66%, Net profits up 77% yoy

Thermax delivered strong all-round performance for the 3rd consecutive quarter – on the

back of robust order backlog. Key highlights of the quarter (1) standalone revenues

grew by robust 66% yoy to Rs12.4 bn – led by both Energy (up 77%) and Environment

(up 45%) (2) EBITDA margins remained stable at 11.8% (3) EBITDA grew by 64% yoy

to Rs1.5 bn (4) Net profit grew by 77% yoy to Rs1.0 bn. Thermax also posted strong

consolidated performance – (1) Revenue up 73% yoy to Rs13.7 bn (2) net profit up 89%

yoy to Rs10.1 bn – includes 3 month consolidation of Dan stoker.

Order inflows at Rs12.3 bn – Q4FY11E implied undemanding at Rs10.3 bn

Thermax order book growth stood at 27% yoy to Rs71.5 bn (down 2% qoq). Order

inflows declined 14% qoq and 7% yoy – yet remain at a healthy Rs12.3 bn. The order

inflow split-up – Energy at Rs9.4 bn or 76% and Environment at Rs2.9 bn or 24%. With

robust order inflows in 9MFY11, the implicit order inflow requirement for Q4FY11E stood

at Rs10.3 bn or -28% yoy or -18% qoq – which can be comfortably achieved (FY11E

order inflows Rs58 bn, similar to FY10)

Thermax shares a optimistic outlook for near-term, no negative surprises

In the post results concall, Thermax shared a optimistic outlook for near term with no

negative surprises. Key takeaways are (1) guided for stable operating margins in near

term (2) covered all critical raw materials for existing order backlog (3) only 15-20% of

raw materials remains uncovered (4) no slow-moving orders in backlog (5) execution

run-rate remains strong (6) no threat for bad and doubtful debt in existing order backlog

and (7) no slippages in working capital cycle.

Reiterate ‘BUY’ – attractive valuations post recent correction

We maintain positive bias on Thermax, given visibility in near-term earnings amidst

healthy order backlog. Thermax is good proxy to private (industrial) sector capex..

Thermax has undergone 28% correction from its peak of Rs927 in Nov’10, now trading

at attractive valuations at 20.5X FY11E and 17.0X FY12E. We retain FY11E and FY12E

earnings of Rs32.4/Share and Rs39.0/Share respectively. Thermax is currently trading

at 15% discount to L&T 1-year forward PER. We reiterate BUY rating with target price

of Rs943/Share.