Thermax – 3QFY2011 Result: Angel Broking maintains a Neutral on Thermax.

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Thermax – 3QFY2011 Result Update

Angel Broking maintains a Neutral on Thermax.

Thermax reported better-than-expected results for 3QFY2011. The company registered 66% yoy growth in top-line to `1,241cr on strong execution. Aided by robust top-line growth and stable EBIDTA margins, reported PAT was up by 77% yoy to `100cr. The quarter witnessed a 20% dip in order inflow to `1,234cr as compared to `1,584cr during the corresponding period of the previous year. Order backlog at the end of the quarter stood at `7,154cr providing revenue visibility for the next 5-6 quarters. We remain Neutral on the stock.
Strong execution drives revenues and profit: Revenues for the quarter registered 66% yoy growth to `1,241cr, which was 22% above our expectations of `1,015cr. The surge in revenues can be attributable to strong order backlog, increasing proportion of EPC revenues and commissioning of new facilities, which accelerated the company’s execution capabilities. The energy and environment segments reported strong growth in revenues and profitability during the quarter. For the nine months ending December 31, 2011, Thermax reported 59% yoy growth in revenue to `3,123cr, while PAT grew by 63% to `256cr.

Outlook and valuation: Thermax has largely benefitted from industrial capex especially in sectors such as steel, cement and oil & gas where it has traditionally offered its products and solutions for captive power and heating solutions. However, post hardening of the interest rates due to high inflation, we expect increasing number of upcoming projects to be delayed, which may negatively impact order flows of companies like Thermax. The company’s recent JVs, viz. Thermax – Babcock & Wilcox and Thermax SPX Energy Technologies, would enable it to expand its product offerings to include supercritical boilers and electrostatic precipitators (ESPs) in addition to its traditional industrial and subcritical boilers. At current levels, the stock is quoting at 22.1x and 18.4x FY2011E and FY2012E EPS, respectively. We remain Neutral on the stock.


Balanced segmental performance: The energy and environment segments both
reported strong growth rates on the back of faster project execution. Despite the
rising commodity prices, Thermax was able to report stable EBDITA margins of
11.8% on account of its prudent material procurement policies. The energy division
reported 77% yoy growth in revenues with stable EBIT margins of 10.8%. The
environment division also reported 45% yoy growth however, EBIT margins
contracted by 142bp to 13.6% possibly on account of higher proportion of EPC
revenues booked during the quarter.
Conference Call Highlights
􀂄 Thermax recently registered with Siemens AG as one of its global supporting
vendor. These tie-ups provide Thermax with the opportunity to be one of
Siemens supporting bidder for the HRSG portion in some of the EPC bids that
Siemens would be placing across the world.
􀂄 The Thermax – Babcock & Wilcox JV has acquired land and commenced
construction at the site. The company has also placed the equipment orders
and the plant is expected to commence production from September 2012
onwards. The JV is expected to bid for forthcoming supercritical boiler
packages (9X800 MW) in the NTPC bulk tendering.
􀂄 Thermax has also been selected by the Government of Maharashtra for setting
up the first-ever geothermal power plant in India.


Order inflows slowing, but order book healthy: Order backlog (standalone) at the
end of the quarter stood at `6,353cr (energy: `5,295cr and environment:
`1,059cr), while the consolidated order book totaled `7,154cr (energy: `6,092cr
and environment: `1,062cr).
Order inflows during 3QFY2011 was at `1,234cr (energy: `937cr and
environment: `297cr) as compared to `1,548cr during the corresponding period
of last year. Excluding the large EPC order (i.e the `1,001cr EPC order from
Meenakshi Energy) received during 2QFY2010, we note that the order flows have
been slowing down in the past two quarters. The current quarter registered a 20%
yoy and 6.9% qoq dip in order accretion. Order inflows YTD have been at
`4,400cr, down by 11.1% yoy. With increasing number of captive power projects
likely to get delayed, the order intake guidance for FY2011 has been revised
downwards from double-digit to flattish growth.


Investment arguments
Power sector in India – Solid growth avenues: At present, the energy segment
accounts for ~76% of the company’s revenues. Incremental capacity additions
planned in the domestic power sector offer huge opportunities for power
equipment manufacturing companies. Moreover, a large number of upcoming
power projects are expected to be coal-fired, which has its own set of associated
energy and environment challenges. With a sound product portfolio in its
environment segment, environmental challenges in the power sector create an
opportunity for the company to meet demand for energy-efficient power
generation, a pivotal need in the context of emission reduction.
JVs – New directions for growth: Thermax has pursued the approach of entering
strategic alliances with global leaders, which besides plugging the technology gaps
has strengthened its product portfolio. Notable JVs include:
Thermax – Babcock & Wilcox JV: This JV for supercritical boilers was registered
in 2QFY2010. Management informs that land has been acquired for the JV
and construction work has commenced. The company has also placed the
machinery orders and the plant is expected to commence production from
September 2012 onwards. The JV is expected to bid for supercritical boiler
packages (9X800 MW) in the NTPC bulk tendering.
Thermax SPX Energy Technologies JV: This JV has obtained the qualifications to
bid for ESP packages of the supercritical range associated with NTPCs’ bulk
tenders. NTPC has separated ESP packages out of BTG tenders and would be
inviting separate bids for the same in the near future. The JV has already bid
for one of the eleven tenders of NTPC and would be participating for the
remaining tenders as and when they are announced.
Outlook and valuation
Thermax has largely benefitted from industrial capex especially in sectors such as
steel, cement and oil & gas where it has traditionally offered its products and
solutions for captive power and heating solutions. However, post hardening of the
interest rates due to high inflation, we expect increasing number of upcoming
projects to be delayed, which may negatively impact order flows of companies like
Thermax. The company’s recent JVs, viz. Thermax – Babcock & Wilcox and
Thermax SPX Energy Technologies, would enable it to expand its product offerings
to include supercritical boilers and electrostatic precipitators (ESPs) in addition to its
traditional industrial and subcritical boilers. At current levels, the stock is quoting
at 22.1x and 18.4x FY2011E and FY2012E EPS, respectively. We remain Neutral
on the stock.