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Thermax ------------------------------------------------------------------------- Maintain OUTPERFORM
Order loss to Cethar Vessels; low visibility on utility order wins to impact valuations
● Cethar Vessels has won the 3X400 MW order from SKS Ispat
power Ltd as per our channel checks. This was an EPC order
worth ~Rs38 bn, for which Thermax was one of the key bidders.
An order loss to Cethar Vessels supports our view of cost and
pricing advantage that Cethar Vessels enjoys. (See detailed note
on Cethar—Indian company Chinese pricing, dated 28 Feb)
● We had anticipated one such win for Thermax next year and, given
this order loss, visibility on potential orders reduces. Given that
Thermax may not aggressively bid for supercritical orders until Sep-
11, we expect limited order wins from IPPs in the near term.
● We retain our negative view on the power order cycle and believe
that coal constraints remain a key challenge. Absence of import
duties in the recent budget continues to expose domestic
manufacturers to Chinese competition. Given the negative view on
the power cycle, we revise down inflows for Thermax, which
impacts EPS by 7%-8% over FY11-13. We see near-term downside
to the stock, but maintain OUTPERFORM (revised target price of
Rs711 from Rs810) given the strength in core orders/ balance sheet
and long-term sustainability of the business model.
Retain negative view on power order cycle
We remain negative on the power order cycle as: (1) bulk of 12th plan
orders have already been awarded, (2) Chinese competition remains
strong with bulk awards from Lanco, R-power and Abhijeet group,
(3) coal supply constraints, (4) no imposition of import duties in the
budget and (5) delay in finalising awards due to either court cases or
issues with approvals (UMPPs) and (6) new competitors such as
Cethar vessels emerging. While the impact of this is more on pure
power utility companies such as BHEL and BGR, we believe that
Thermax’ growth could also moderate somewhat as wins in utility
scale orders would be more difficult given the weak environment.
Hence, we reduce FY11-12 inflows by 5-15%, which impacts FY12-13
earnings by 7-8%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Thermax ------------------------------------------------------------------------- Maintain OUTPERFORM
Order loss to Cethar Vessels; low visibility on utility order wins to impact valuations
● Cethar Vessels has won the 3X400 MW order from SKS Ispat
power Ltd as per our channel checks. This was an EPC order
worth ~Rs38 bn, for which Thermax was one of the key bidders.
An order loss to Cethar Vessels supports our view of cost and
pricing advantage that Cethar Vessels enjoys. (See detailed note
on Cethar—Indian company Chinese pricing, dated 28 Feb)
● We had anticipated one such win for Thermax next year and, given
this order loss, visibility on potential orders reduces. Given that
Thermax may not aggressively bid for supercritical orders until Sep-
11, we expect limited order wins from IPPs in the near term.
● We retain our negative view on the power order cycle and believe
that coal constraints remain a key challenge. Absence of import
duties in the recent budget continues to expose domestic
manufacturers to Chinese competition. Given the negative view on
the power cycle, we revise down inflows for Thermax, which
impacts EPS by 7%-8% over FY11-13. We see near-term downside
to the stock, but maintain OUTPERFORM (revised target price of
Rs711 from Rs810) given the strength in core orders/ balance sheet
and long-term sustainability of the business model.
Retain negative view on power order cycle
We remain negative on the power order cycle as: (1) bulk of 12th plan
orders have already been awarded, (2) Chinese competition remains
strong with bulk awards from Lanco, R-power and Abhijeet group,
(3) coal supply constraints, (4) no imposition of import duties in the
budget and (5) delay in finalising awards due to either court cases or
issues with approvals (UMPPs) and (6) new competitors such as
Cethar vessels emerging. While the impact of this is more on pure
power utility companies such as BHEL and BGR, we believe that
Thermax’ growth could also moderate somewhat as wins in utility
scale orders would be more difficult given the weak environment.
Hence, we reduce FY11-12 inflows by 5-15%, which impacts FY12-13
earnings by 7-8%.
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