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THERMAX LTD
PRICE: RS.587 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.683 FY12E P/E: 16.3X
q The management highlights the need to accelerate order intake in FY12
to secure growth in FY13. The company has taken several initiatives to
tap the renewable energy space mainly biomass and solar-thermal.
q The company has three plants coming up in the next 18 months including
supercritical boilers, chemicals and air pollution control equipments.
q Subsidiary performance in FY11 has been in line with parent. The company
has not consolidated the numbers of Danstoker A/S in FY11 (being
a Nov year-end).
q Thermax has ended FY11 with an order backlog of Rs 64.5 bn up 8%. We
have thus built in moderation in earnings growth in FY12.
Concerns
n The annual report highlights competition from Chinese players in energy segment,
which has the potential to spread to other segments as well.
n With the firming up of the interest rates, order finalization is taking longer.
Key highlights of from Annual Report
n In the power EPC segment, the company commissioned 8 plants totaling 133
MW in FY11, thus taking the cumulative capacity of power plants commissioned
to 900 MW. The company has consolidated its strong position in the sub-15 MW
power plants with a 40% market share. In this segment, the company won several
orders based on waste or renewable energy.
n Competition has been intense in the HRSG space especially from foreign suppliers.
The company is working on optimizing the product cost to take on competition
in this segment. These systems are used in gas based power plants for improving
the overall efficiency of the power plant.
n The heater division (small boilers) posted modest growth in revenue in FY11.
With spiraling liquid fuel prices users are looking at shifting to solid fuels, which
is resulting in demand for such boilers.
n The water and waste water treatment division is expecting healthy business
growth in FY12 from the municipal corporations. Apart from this, spending under
the JNNURM funding is also expected to drive business opportunities.
n The profitability of chemicals business was under pressure due to higher commodity
and crude prices. The company has signed MOU with technology partners
to expand product offerings.
Capacity expansion
n The capacity expansion initiatives are progressing on schedule. Construction
work at the manufacturing facility for supercritical boilers set up by its joint venture
(with Babcock Wilcox) is going on and the plant is expected to be commissioned
in September 2012. TBW has been prequalified for the recent NTPC tenders.
n At Jhagadia, Gujarat, the manufacturing plant for performance chemicals is coming
up. Construction work is progressing and subject to statutory clearances, the
facility is due for commissioning by the end of the year.
n Commercial production from manufacturing and assembly shop for air pollution
control equipment at Solapur is expected to begin in the last quarter of FY12.
Financials - Significant cash outgo during the year
n During the year, the company paid Rs 1.6 bn towards settlement of case with
Purolite International. The company also acquired Danstoker A/S for a consideration
of Rs 1.9 bn.
n On a consolidated basis, the company invested Rs 1.5 bn towards capacity expansion
programme.
n At the end of FY11, cash and liquid investments were Rs 82 per share. The company
has cash worth Rs 7.5 bn on a consolidated basis.
n Working capital cycle continued to be negative at 18 days vs 52 days in FY10
mainly due to flat customer advances.
New initiatives
n Apart from air pollution control equipment, TSPX has introduced air cooled condensers
for large power plants, which will reduce water requirement by over
90%, thus saving a very precious resource.
n The other focus area is the renewable energy. Biomass waste is a technology
that Thermax has been working on for over thirty years. In FY11, the company
acquired Omnical Kessel (through buyout of Danstoker A/S, a leading European
boiler manufcaturer), which is very strong in biomass energy. Thermax to gain
from the ongoing renewable energy movement of Europe aimed at generating
20% from renewables by 2020.
n Thermax is also pursuing products, applications and solutions based on solar and
geothermal energy. The company is setting up India's first solar hybrid power
plant in Shive, Maharashtra (in partnership with Dept of Science and Technology).
This is an R&D project of national importance and if feasible, this model
could be replicated by the government in other villages as well. Thermax has
taken the lead in the domestic market in the solar thermal cooling and heating
applications and has 11 installations in the country.
n Having successfully built the EPC business in energy sector, the company intends
to take up EPC projects in the environment space as well.
Valuation and target price revision
n We revise our DCF based target price to Rs 683 vs Rs 737 earlier. We have built
in higher working capital (on lower customer advances due to sluggish order intake)
and ongoing moderation in order intake in our DCF workings.
n We maintain Accumulate on the stock in view of reducing revenue visibility as a
result of weak order intake and deteriorating macroeconomic scenario (rising interest
rates).
Concerns
n The annual report highlights competition from Chinese players in energy segment,
which has the potential to spread to other segments as well.
n With the firming up of the interest rates, order finalization is taking longer.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
THERMAX LTD
PRICE: RS.587 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.683 FY12E P/E: 16.3X
q The management highlights the need to accelerate order intake in FY12
to secure growth in FY13. The company has taken several initiatives to
tap the renewable energy space mainly biomass and solar-thermal.
q The company has three plants coming up in the next 18 months including
supercritical boilers, chemicals and air pollution control equipments.
q Subsidiary performance in FY11 has been in line with parent. The company
has not consolidated the numbers of Danstoker A/S in FY11 (being
a Nov year-end).
q Thermax has ended FY11 with an order backlog of Rs 64.5 bn up 8%. We
have thus built in moderation in earnings growth in FY12.
Concerns
n The annual report highlights competition from Chinese players in energy segment,
which has the potential to spread to other segments as well.
n With the firming up of the interest rates, order finalization is taking longer.
Key highlights of from Annual Report
n In the power EPC segment, the company commissioned 8 plants totaling 133
MW in FY11, thus taking the cumulative capacity of power plants commissioned
to 900 MW. The company has consolidated its strong position in the sub-15 MW
power plants with a 40% market share. In this segment, the company won several
orders based on waste or renewable energy.
n Competition has been intense in the HRSG space especially from foreign suppliers.
The company is working on optimizing the product cost to take on competition
in this segment. These systems are used in gas based power plants for improving
the overall efficiency of the power plant.
n The heater division (small boilers) posted modest growth in revenue in FY11.
With spiraling liquid fuel prices users are looking at shifting to solid fuels, which
is resulting in demand for such boilers.
n The water and waste water treatment division is expecting healthy business
growth in FY12 from the municipal corporations. Apart from this, spending under
the JNNURM funding is also expected to drive business opportunities.
n The profitability of chemicals business was under pressure due to higher commodity
and crude prices. The company has signed MOU with technology partners
to expand product offerings.
Capacity expansion
n The capacity expansion initiatives are progressing on schedule. Construction
work at the manufacturing facility for supercritical boilers set up by its joint venture
(with Babcock Wilcox) is going on and the plant is expected to be commissioned
in September 2012. TBW has been prequalified for the recent NTPC tenders.
n At Jhagadia, Gujarat, the manufacturing plant for performance chemicals is coming
up. Construction work is progressing and subject to statutory clearances, the
facility is due for commissioning by the end of the year.
n Commercial production from manufacturing and assembly shop for air pollution
control equipment at Solapur is expected to begin in the last quarter of FY12.
Financials - Significant cash outgo during the year
n During the year, the company paid Rs 1.6 bn towards settlement of case with
Purolite International. The company also acquired Danstoker A/S for a consideration
of Rs 1.9 bn.
n On a consolidated basis, the company invested Rs 1.5 bn towards capacity expansion
programme.
n At the end of FY11, cash and liquid investments were Rs 82 per share. The company
has cash worth Rs 7.5 bn on a consolidated basis.
n Working capital cycle continued to be negative at 18 days vs 52 days in FY10
mainly due to flat customer advances.
New initiatives
n Apart from air pollution control equipment, TSPX has introduced air cooled condensers
for large power plants, which will reduce water requirement by over
90%, thus saving a very precious resource.
n The other focus area is the renewable energy. Biomass waste is a technology
that Thermax has been working on for over thirty years. In FY11, the company
acquired Omnical Kessel (through buyout of Danstoker A/S, a leading European
boiler manufcaturer), which is very strong in biomass energy. Thermax to gain
from the ongoing renewable energy movement of Europe aimed at generating
20% from renewables by 2020.
n Thermax is also pursuing products, applications and solutions based on solar and
geothermal energy. The company is setting up India's first solar hybrid power
plant in Shive, Maharashtra (in partnership with Dept of Science and Technology).
This is an R&D project of national importance and if feasible, this model
could be replicated by the government in other villages as well. Thermax has
taken the lead in the domestic market in the solar thermal cooling and heating
applications and has 11 installations in the country.
n Having successfully built the EPC business in energy sector, the company intends
to take up EPC projects in the environment space as well.
Valuation and target price revision
n We revise our DCF based target price to Rs 683 vs Rs 737 earlier. We have built
in higher working capital (on lower customer advances due to sluggish order intake)
and ongoing moderation in order intake in our DCF workings.
n We maintain Accumulate on the stock in view of reducing revenue visibility as a
result of weak order intake and deteriorating macroeconomic scenario (rising interest
rates).
Concerns
n The annual report highlights competition from Chinese players in energy segment,
which has the potential to spread to other segments as well.
n With the firming up of the interest rates, order finalization is taking longer.
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