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Thermax (TMX)
Industrials
Base business supports ordering; remains cautious on large-size projects capex.
Thermax reported steady ordering (all divisions except EPC projects grew yoy; run rate
in line to meet our full-year estimates) as it focuses on regular orders (less elastic
demand, local competition, market preference). Such strong performance may
materially improve as cycle picks up and new ventures start contributing (ties up for
building chemicals, solar technologies). Thermax remains cautious on near-term
outlook, especially for large-sized EPC projects in steel and power. Retain ADDCurrent ordering primarily supported by regular orders; can pick up materially as cycle improves
Thermax’s present levels of ordering despite weak contribution from cement and power sectors
(15-17% share in 1H versus 40% in past) is commendable and may materially improve as cycle
picks up. The company is focusing on lower-end, base orders and is benefitting from (1) less elastic
demand (low ticket investment size), (2) lower competition (only local) (3) better execution and
margin, and (4) market preference for its products. It is also expanding its opportunity set into
building chemicals and concentrated solar PV cells business through various foreign tie-ups
Remains very cautious on near-term outlook, especially for larger EPC projects
Thermax management remained cautious on the near-term outlook for the capex momentum
especially in the steel sector on higher interest rate (big ticket investments) and input constraints
(steel price, lifting of coking coal subsidy). It was also bearish on demand in power sector (coal
concerns, stagnant investments in projects) which would require structural changes in the industry
(government policy on mining, land acquisition etc.). The company does expect some recovery in
the cement sector (prices to stabilize as capacities are absorbed). It did witness traction in O&G
(30% of 2Q ordering) and food processing sector as inflows pick up in 2QFY12.
Guides for steady ordering and revenue moderation; unviable bulk tender pricing not a benchmark
The company expects 2H ordering to match 1H (Rs26 bn so far), broadly in line with our order
estimate of Rs50 bn in FY2012E. It, however, expects revenue growth in 2H to moderate versus
the strong 25% growth in 1H. Thermax did not bid seriously for NTPC bulk tender (would have
had to import first few equipments) but believes that the winning bids appear non-remunerative.
Retain ADD rating on reasonable valuations, expanding opportunity set and strong balance sheet
We marginally revise estimates to Rs33.9 and Rs33.7 from Rs31.9 and Rs31.7 for FY2012 and
FY2013 on incorporating Danstoker’s numbers in our model. We revise our FY2013E multiple to
15 from 16 on weak capex environment (unchanged TP) and reiterate our ADD rating on
(1) attractive valuations, (2) expansion of business opportunity and (3) strong balance sheet.
.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Thermax (TMX)
Industrials
Base business supports ordering; remains cautious on large-size projects capex.
Thermax reported steady ordering (all divisions except EPC projects grew yoy; run rate
in line to meet our full-year estimates) as it focuses on regular orders (less elastic
demand, local competition, market preference). Such strong performance may
materially improve as cycle picks up and new ventures start contributing (ties up for
building chemicals, solar technologies). Thermax remains cautious on near-term
outlook, especially for large-sized EPC projects in steel and power. Retain ADDCurrent ordering primarily supported by regular orders; can pick up materially as cycle improves
Thermax’s present levels of ordering despite weak contribution from cement and power sectors
(15-17% share in 1H versus 40% in past) is commendable and may materially improve as cycle
picks up. The company is focusing on lower-end, base orders and is benefitting from (1) less elastic
demand (low ticket investment size), (2) lower competition (only local) (3) better execution and
margin, and (4) market preference for its products. It is also expanding its opportunity set into
building chemicals and concentrated solar PV cells business through various foreign tie-ups
Remains very cautious on near-term outlook, especially for larger EPC projects
Thermax management remained cautious on the near-term outlook for the capex momentum
especially in the steel sector on higher interest rate (big ticket investments) and input constraints
(steel price, lifting of coking coal subsidy). It was also bearish on demand in power sector (coal
concerns, stagnant investments in projects) which would require structural changes in the industry
(government policy on mining, land acquisition etc.). The company does expect some recovery in
the cement sector (prices to stabilize as capacities are absorbed). It did witness traction in O&G
(30% of 2Q ordering) and food processing sector as inflows pick up in 2QFY12.
Guides for steady ordering and revenue moderation; unviable bulk tender pricing not a benchmark
The company expects 2H ordering to match 1H (Rs26 bn so far), broadly in line with our order
estimate of Rs50 bn in FY2012E. It, however, expects revenue growth in 2H to moderate versus
the strong 25% growth in 1H. Thermax did not bid seriously for NTPC bulk tender (would have
had to import first few equipments) but believes that the winning bids appear non-remunerative.
Retain ADD rating on reasonable valuations, expanding opportunity set and strong balance sheet
We marginally revise estimates to Rs33.9 and Rs33.7 from Rs31.9 and Rs31.7 for FY2012 and
FY2013 on incorporating Danstoker’s numbers in our model. We revise our FY2013E multiple to
15 from 16 on weak capex environment (unchanged TP) and reiterate our ADD rating on
(1) attractive valuations, (2) expansion of business opportunity and (3) strong balance sheet.
.
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