Thermax: Multiple growth drivers :Motilal oswal

Beneficiary offew structural trends
TMX is benefiting from few structural trends: (1) increased energy pricing
(electricity prices up 15-20% over last 18 months) driving demand for energy
efficiency products (2) Hunt for alternative energy and TMX derives ~30% of
revenues from Green products (3) stringent government regulations and
increased environmental concerns (4) currency depreciation is also leading to
increased possibilities of exports (currently at 19% of revenues), etc.

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Access to global markets -target 40% of revenues
Overseas revenues contributed 27% of the consolidated revenues in FY13, and
we expect the share to increase to 40% by FY16E. Key drivers: (1) Many of
TMX's technology tie-ups provide opportunities to access overseas markets (2)
Danstoker and Rifox (FY13 revenues INR3.6b) are witnessing strong growth
particularly in biomass, heat pumps, etc and Danstoker is fully booked for FY14
(3) TMX's successful execution track record for EPC projects also expands
possibilities for more such contracts (4) Refinery capex in ME is an important
driver (5) Initial forays into LATAM, Africa, Europe and ME and attempt is to
scale-up (6) Service exports have increased from INR80-90m in FY11/12 to
INR561m in FY13, driving growth (7) Fortified positioning in HRSG (8) TBW also
expected to receive preference orders from international markets.
Overseas business to support growth, domestic business constrained
We expect TMX to report 4% revenue CAGR till FY15; and expect acceleration in
FY16E (up 20% YoY). We understand that TMX is possibly an ‘early’ stage
beneficiary of the possible uptick in the investment climate, particularly in the
heating / WHR segment (25-28% of consolidated revenues). During FY13,
exports order intake at INR11.5b was 24% of total intake and was up 46% YoY
(revenues INR8.8b). Domestic business remains constrained; however large
order finalizations including JSPL 1,320MW, Fertilizer projects, Hydrocarbon
capex, Cement capacity expansion, etc are important driversfor TMX.
Valuation and View
We expect TMX to report earnings CAGR of 5% over FY13-15, and 33% in FY16E.
We maintain Buy, with an 18-month price target of INR850 (20x FY16E at
INR762/sh and INR86/sh in subsidiaries). Key concern has been the muted
domestic order intake in 1HFY14 / 4QFY13 which declined to INR5-7b/qtr vs
run-rate of INR10b. Constrained near term demand environment will impact
execution, and could be an important overhang.