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Near term headwinds
Thermax’s order book at FY11-end fell by 5% YoY, as it only won a single
large project, on account of delays in order finalisations and more intense
competition. Margins are likely to slide downwards, on account of more
EPC work, higher commodity costs and aggressive bidding. We moderate
our order flow assumptions and Ebitda margins assumptions, resulting in
a 6-9% cut in FY12-13 EPS. However, valuations look reasonable, with
the stock trading at a 16.4x FY12 and 13.8x FY13 PE, c.20% discount to
its five year average. Maintain O-PF with a reduced target of Rs680/sh.
Strong execution but poor order flows in FY11
Strong execution boosted Thermax’s FY11 revenue by 58% YoY to Rs53bn.
Ebitda margins stood at 11.3% (down 40bps YoY), broadly in-line with our
expectations, as the company undertook more EPC work. However, order
inflows fell by 5% YoY, to Rs60bn, on account of only one large project win - a
72MW combined-cycle plant (Rs5.8bn). It lost two large projects (4 x 300MW
SKS Ispat EPC orders and a 270MW Meenaxi order) to Cethar Vessels in
FY11. By contrast, Thermax had announced Rs19.7bn in orders in FY10.
Gradual pick up in orders; expect margins to slide
Thermax won two large projects, aggregating Rs7.7bn, at the opening of
FY12, which should somewhat ease investor concerns regarding order delays.
Since the company can now take on EPC projects for IPP and supply utility
size boilers, versus only catering to captive power plants, its business
becomes relatively less cyclical. Moreover, while JNNURM projects saw
significant delays in FY11, a pick up in FY12 helps order flows in the
Environment segment. Consequently, we forecast 8-11% YoY order growth for
FY12-13, albeit lower than our earlier estimates. However, intense
competition, more EPC work and higher commodity costs could squeeze
margins; we lower our Ebitda margin forecast by 30-70bps (to 10.5-10.7%).
Coupled with 0-6% lower revenue, the shift leads to 6-9% cut in EPS.
Maintain O-PF with a reduced target
We believe near-term delay concerns and intensifying competition are
reflected in Thermax’s 16.4x FY12 and 13.8x FY13 PE valuation (about a 20%
discount to its five-year average). Strategic enhancements allow the company
to tackle larger projects such as ESP supply, heating and cooling solutions for
combined-cycle gas developments and environmental products. We maintain
our Outperform call but cut our target from Rs805 to Rs680 (15x FY13 PE).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near term headwinds
Thermax’s order book at FY11-end fell by 5% YoY, as it only won a single
large project, on account of delays in order finalisations and more intense
competition. Margins are likely to slide downwards, on account of more
EPC work, higher commodity costs and aggressive bidding. We moderate
our order flow assumptions and Ebitda margins assumptions, resulting in
a 6-9% cut in FY12-13 EPS. However, valuations look reasonable, with
the stock trading at a 16.4x FY12 and 13.8x FY13 PE, c.20% discount to
its five year average. Maintain O-PF with a reduced target of Rs680/sh.
Strong execution but poor order flows in FY11
Strong execution boosted Thermax’s FY11 revenue by 58% YoY to Rs53bn.
Ebitda margins stood at 11.3% (down 40bps YoY), broadly in-line with our
expectations, as the company undertook more EPC work. However, order
inflows fell by 5% YoY, to Rs60bn, on account of only one large project win - a
72MW combined-cycle plant (Rs5.8bn). It lost two large projects (4 x 300MW
SKS Ispat EPC orders and a 270MW Meenaxi order) to Cethar Vessels in
FY11. By contrast, Thermax had announced Rs19.7bn in orders in FY10.
Gradual pick up in orders; expect margins to slide
Thermax won two large projects, aggregating Rs7.7bn, at the opening of
FY12, which should somewhat ease investor concerns regarding order delays.
Since the company can now take on EPC projects for IPP and supply utility
size boilers, versus only catering to captive power plants, its business
becomes relatively less cyclical. Moreover, while JNNURM projects saw
significant delays in FY11, a pick up in FY12 helps order flows in the
Environment segment. Consequently, we forecast 8-11% YoY order growth for
FY12-13, albeit lower than our earlier estimates. However, intense
competition, more EPC work and higher commodity costs could squeeze
margins; we lower our Ebitda margin forecast by 30-70bps (to 10.5-10.7%).
Coupled with 0-6% lower revenue, the shift leads to 6-9% cut in EPS.
Maintain O-PF with a reduced target
We believe near-term delay concerns and intensifying competition are
reflected in Thermax’s 16.4x FY12 and 13.8x FY13 PE valuation (about a 20%
discount to its five-year average). Strategic enhancements allow the company
to tackle larger projects such as ESP supply, heating and cooling solutions for
combined-cycle gas developments and environmental products. We maintain
our Outperform call but cut our target from Rs805 to Rs680 (15x FY13 PE).
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