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UBS Investment Research
Thermax
2 QFY12 results: No surprises
2QFY12 results: In line with UBS-e
Thermax has reported sales of Rs13.04bn (up 21% YoY) and PAT of Rs1.02bn (up
14% YoY). However, the EBITDA margin declined 112bps primarily due to
higher raw material cost. On the half yearly basis, revenue grew by 26% YoY to
Rs23.48bn and PAT increased by 17% to Rs1.82bn. The results are in line with
UBS-e and marginally ahead of consensus estimates.
2QFY12: Revenue growth in both segments, margins improve in energy
The company has reported reasonable revenue growth in both the segments. In
2QFY12, energy segment revenue grew 18% YoY and environment grew 20%
YoY. However, the trend in EBIT margins was mixed. EBIT margins improved
30bps in energy segment and declined by 160bps in environment segment.
Order book declined on a YoY basis, conference call tomorrow at 10:30am
At the end of 1H FY12, Thermax has order book of Rs57.7bn (13% decline YoY)
and the group order book is Rs65.3bn (10% decline YoY and 4% decline QoQ).
The order inflow is lower than the revenues for this quarter and it will be a cause of
concern if the trend continues. The 2Q results conference call is on 21st October at
10:30am and we expect to get more details on order inflow pipeline in the call.
Valuation: Sell rating with a price target of Rs450
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. Our price target assumes a
WACC of 12.8%. We do not expect major near-term triggers and hence view the
current valuation as stretched.
Thermax
Thermax is a major engineering company in India. It has two primary business
divisions: energy and environment. The energy segment contributes 81% to total
revenue and environment contributes the balance. Headquartered in Pune,
Thermax has five manufacturing facilities (four in India and one in China). The
company has a 51% JV with Babcock & Wilcox to manufacture supercritical
boilers.
Statement of Risk
We believe the key upside risks to our Sell rating for Thermax are: 1) robust
new orders for supercritical equipment; 2) expanding margins; 3) more
regulatory support; for example, an import duty on large-capacity power
equipment; and 4) a pick-up in industrial capex. We believe the key downside
risks are: 1) execution delays in power projects; 2) heavy competition from
foreign manufacturers, especially from China; 3) rising raw material prices; 4)
risks associated with the diversification strategy (in high MW capacity boilers);
and 5) execution risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Thermax
2 QFY12 results: No surprises
2QFY12 results: In line with UBS-e
Thermax has reported sales of Rs13.04bn (up 21% YoY) and PAT of Rs1.02bn (up
14% YoY). However, the EBITDA margin declined 112bps primarily due to
higher raw material cost. On the half yearly basis, revenue grew by 26% YoY to
Rs23.48bn and PAT increased by 17% to Rs1.82bn. The results are in line with
UBS-e and marginally ahead of consensus estimates.
2QFY12: Revenue growth in both segments, margins improve in energy
The company has reported reasonable revenue growth in both the segments. In
2QFY12, energy segment revenue grew 18% YoY and environment grew 20%
YoY. However, the trend in EBIT margins was mixed. EBIT margins improved
30bps in energy segment and declined by 160bps in environment segment.
Order book declined on a YoY basis, conference call tomorrow at 10:30am
At the end of 1H FY12, Thermax has order book of Rs57.7bn (13% decline YoY)
and the group order book is Rs65.3bn (10% decline YoY and 4% decline QoQ).
The order inflow is lower than the revenues for this quarter and it will be a cause of
concern if the trend continues. The 2Q results conference call is on 21st October at
10:30am and we expect to get more details on order inflow pipeline in the call.
Valuation: Sell rating with a price target of Rs450
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. Our price target assumes a
WACC of 12.8%. We do not expect major near-term triggers and hence view the
current valuation as stretched.
Thermax
Thermax is a major engineering company in India. It has two primary business
divisions: energy and environment. The energy segment contributes 81% to total
revenue and environment contributes the balance. Headquartered in Pune,
Thermax has five manufacturing facilities (four in India and one in China). The
company has a 51% JV with Babcock & Wilcox to manufacture supercritical
boilers.
Statement of Risk
We believe the key upside risks to our Sell rating for Thermax are: 1) robust
new orders for supercritical equipment; 2) expanding margins; 3) more
regulatory support; for example, an import duty on large-capacity power
equipment; and 4) a pick-up in industrial capex. We believe the key downside
risks are: 1) execution delays in power projects; 2) heavy competition from
foreign manufacturers, especially from China; 3) rising raw material prices; 4)
risks associated with the diversification strategy (in high MW capacity boilers);
and 5) execution risk.
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