Thermax:FY12 Annual Report - Key takeaways :: religare research,

FY12 Annual Report takeaways
Key takeaways from TMX’s FY12 annual report are: (1) working capital in FY12
continued to be higher than the historical trend on weakness in order inflows and
increase in receivable days, 2) profitability for the group was impacted by losses in
subsidiaries even as Danstroker grew ahead of expectations and 3) annual report
commentary emphasises on scale-up in exports (26%/22% of consol./standalone
sales) and services (12%/5% of consol./standalone sales) to counter the slowdown in
the domestic Power business. In our opinion, order inflows/earnings are unlikely to
surprise positively in H1FY13E, however valuations are likely to follow business
confidence indices. Maintain BUY.

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v Increase in working capital: Working capital in FY12 continued to remain higher
than the historical trend on weakness in order inflows and increase in receivable
days. Receivable days were at 84, in line with the highest levels in the past 10 years.
Customer advances days declined to 47 (from 69) as order inflows in FY12 were at
Rs 40.3bn, down 24% YoY. However, absolute cash and cash equivalents were
comfortable at Rs 7bn (33% of the consolidated BS).
v Projects business expected to remain weak: The management expects the power
business to continue to be weak in FY13E and FY14E as order inflows are likely to
be weak in H1FY13E; however, the commentary on the Boiler and Heater business
is relatively positive on account of expected revival of captive power plants. To
counter the decline in power projects business, the company has increased focus on
the power services business, but the scale is fairly small.
v Subsidiaries impacted by cost over-runs, competition: The main subsidiaries
which reported a loss in FY12 were: 1) Thermax Instrumentation – construction arm
of the power division – loss of Rs 104 mn on cost over-runs, 2) Thermax Zhejiangabsorption
chillers in China – loss of Rs 70mn on high competition, 3) Thermax
B&W – a JV for supercritical boilers – pre-operative expenses. However, Danstroker
grew ahead of expectations in a challenging environment in Europe.