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Thermax (TMX)
Industrials
Weak order inflows affect visibility. Thermax reported sharp fall in backlog to Rs51
bn leading to guidance of decline in FY2013E revenues. The company may lower
margin requirement if inflows continue to remain sedate. It expects domestic business
to be challenging in 1HFY13E with steel and cement supporting recovery in 2HFY13E
and power recovering only in FY2014E. Supercritical JV on track for Sep 2012
completion. Retain REDUCE on back of weak inflows, competition and margin pressure.
Backlog declines significantly leading to guidance of declining topline and potential margin fall
Sedate 3QFY12 inflows of Rs5.9 bn versus quarterly run-rate of Rs12-14 bn led to backlog
declining to Rs51 bn (Rs58 bn at end-Sep ’11, Rs64 bn at end-Dec ’10). TMX may lower margin
requirement if inflows continue to remain sedate. Standalone sales were Rs12.7 bn in 3Q, (6%
miss, up 2% yoy). EBITDA margin declined by 110 bps yoy to10.7% on higher other expenses.
Outlook: Steel, cement to lead pick-up expected only in 2HFY13E; power pick-up delay to FY2014E
Thermax expects project ordering to pick up with steel and cement ordering starting from
2HFY13E with the first half being very challenging in inflows. Improvement in power sector may
be delayed till FY2014E on resolution of key issues (tariffs, fuel security, interest rates and land
acquisition). In the near term, Thermax is expecting better business from exports (based on
enquires) versus domestic. Sharp decline in backlog led to guidance decline in FY2013E revenues.
It aims to maintain FY2013E margin at current levels (10%) although highlighted openness to
compromise on margin (sedate inflows, retaining existing customer) but not on commercial terms.
Other takeaways: Receivables led increase in working capital; B&W JV progressing as per plan
Working capital has increased to Rs1.7 bn from Rs455 mn at end Sep 2011 (Rs500 mn increase in
receivables, Rs1 bn lower advances) although still low in absolute terms at 12 days of sales. Its
supercritical JV with Babcock Wilcox is on track for completion by Sep’12 though ramp-up appears
to be slower than expected (130 recruitment versus initial projections of about 250 by this time).
Revise estimates; retain REDUCE on back of weak inflows, competition and margin pressure
We have revised EPS estimates to Rs33.3 and Rs33.1 from Rs32.8 and Rs31.4 for FY2012E and
FY2013E with marginal changes to order inflows (Rs45 bn for FY2012E with Rs32 bn in 9MYF11
and Rs49.5 bn in FY2013E) and margins (for both standalone as well as the Rs8.5 bn subsidiaries
business). We revise our target price to Rs500 (15XFY2013E from 13XFY2013E). We retain
REDUCE (downgraded in last sector note on Jan 18 on sharp run-up) on back of (1) weak inflows
on back of slow capex environment, (2) strong competition potentially leading to margin pressure
as well and (3) valuations that do not leave much upside as stock trades at about 15X FY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Thermax (TMX)
Industrials
Weak order inflows affect visibility. Thermax reported sharp fall in backlog to Rs51
bn leading to guidance of decline in FY2013E revenues. The company may lower
margin requirement if inflows continue to remain sedate. It expects domestic business
to be challenging in 1HFY13E with steel and cement supporting recovery in 2HFY13E
and power recovering only in FY2014E. Supercritical JV on track for Sep 2012
completion. Retain REDUCE on back of weak inflows, competition and margin pressure.
Backlog declines significantly leading to guidance of declining topline and potential margin fall
Sedate 3QFY12 inflows of Rs5.9 bn versus quarterly run-rate of Rs12-14 bn led to backlog
declining to Rs51 bn (Rs58 bn at end-Sep ’11, Rs64 bn at end-Dec ’10). TMX may lower margin
requirement if inflows continue to remain sedate. Standalone sales were Rs12.7 bn in 3Q, (6%
miss, up 2% yoy). EBITDA margin declined by 110 bps yoy to10.7% on higher other expenses.
Outlook: Steel, cement to lead pick-up expected only in 2HFY13E; power pick-up delay to FY2014E
Thermax expects project ordering to pick up with steel and cement ordering starting from
2HFY13E with the first half being very challenging in inflows. Improvement in power sector may
be delayed till FY2014E on resolution of key issues (tariffs, fuel security, interest rates and land
acquisition). In the near term, Thermax is expecting better business from exports (based on
enquires) versus domestic. Sharp decline in backlog led to guidance decline in FY2013E revenues.
It aims to maintain FY2013E margin at current levels (10%) although highlighted openness to
compromise on margin (sedate inflows, retaining existing customer) but not on commercial terms.
Other takeaways: Receivables led increase in working capital; B&W JV progressing as per plan
Working capital has increased to Rs1.7 bn from Rs455 mn at end Sep 2011 (Rs500 mn increase in
receivables, Rs1 bn lower advances) although still low in absolute terms at 12 days of sales. Its
supercritical JV with Babcock Wilcox is on track for completion by Sep’12 though ramp-up appears
to be slower than expected (130 recruitment versus initial projections of about 250 by this time).
Revise estimates; retain REDUCE on back of weak inflows, competition and margin pressure
We have revised EPS estimates to Rs33.3 and Rs33.1 from Rs32.8 and Rs31.4 for FY2012E and
FY2013E with marginal changes to order inflows (Rs45 bn for FY2012E with Rs32 bn in 9MYF11
and Rs49.5 bn in FY2013E) and margins (for both standalone as well as the Rs8.5 bn subsidiaries
business). We revise our target price to Rs500 (15XFY2013E from 13XFY2013E). We retain
REDUCE (downgraded in last sector note on Jan 18 on sharp run-up) on back of (1) weak inflows
on back of slow capex environment, (2) strong competition potentially leading to margin pressure
as well and (3) valuations that do not leave much upside as stock trades at about 15X FY2013E.
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