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Thermax (TMX)
Industrials
Strong results but concern on inflows remains. Thermax reported strong 3QFY11
revenue growth of 66% yoy (11.6% above estimates) likely led by pick-up in execution
of large orders and low base effect of 3QFY10—both segments record strong revenues.
Net PAT at Rs1 bn was up 77% yoy. Contribution margin declined sharply by 480 bps
indicating increase in share of project business. Order inflows continued to remain
relatively sedate in 3Q as well, recording a yoy decline of about 20%.
Strong revenues beat estimates; maintains EBITDA margin though contribution margin declines
Thermax reported strong revenues of Rs12.4 bn, up 66% yoy and significantly ahead (11.6%) of
our estimates likely led by a pick-up in execution of certain large orders and also aided by low base
effect (revenues had recorded an 8% yoy decline in 3QFY10). EBITDA margin at 11.8% was
broadly in line with our estimate. Contribution margin contracted by 480 bps yoy possibly due to
increase in share of project business. The margins for the quarter were likely supported by
operating leverage (on the back of strong revenue growth). Thermax reported a net PAT of Rs1 bn,
up 77% yoy from Rs565 mn in 3QFY10 and 13% ahead of our estimate of Rs884 mn.
Both segments record strong revenue growth but decline in energy segment margins a worry
Both the energy as well as environment segments recorded very strong yoy revenue growth of
77% and 45% yoy, respectively. The energy segment maintained EBIT margins at 10.8%; however;
the environment margin contracted 140 bps yoy. The margin decline was potentially led by higher
raw material costs as well as slightly lower margins on execution in large projects.
Order activity just about keeps pace; would require stronger order booking to maintain visibility
Thermax reported order inflows of Rs12.3 bn in 3QFY11, down 20% yoy. This is the second
consecutive quarter where Thermax has reported strong de-growth in order inflows. For 9MFY11
order inflows are Rs42.9 bn, down 7% yoy. We believe that Thermax would require much
stronger order inflows to maintain growth visibility given the strong scale-up in revenues.
Revise earnings based on lower large utility orders; retain BUY
We revise our revenue estimates to Rs.30.7 and Rs39.8 for FY2011E and FY2012E, respectively,
from Rs31.5 and Rs42.3 based on lower large utility orders. We have correspondingly revised our
target price to Rs910 (from Rs965) comprised of (1) Rs835/ share for the core business (implying
21X P/E on FY2012E EPS) and (2) Rs75/share for 51% stake in a super critical JV with B&W. We
reiterate our BUY rating based on (1) likely strong revenue growth, (2) strong expansion of
business opportunity, (3) extremely strong balance sheet and (4) among the best-positioned to
benefit from growing capex environment.
Strong revenue growth; maintains EBITDA margins but contribution margin falls
Thermax reported revenue of Rs12.4 bn (up 66% yoy) in 3QFY11. EBITDA margin at 11.8%
for 3QFY11 was broadly in line with estimates and relatively flat on a yoy basis. Thermax
reported a net PAT of Rs1 bn, up 77% yoy from Rs565 mn in 3QFY10 and 15.3% ahead of
our estimate of Rs869 mn. For the nine months ending December 31, 2010, Thermax has
reported a strong revenue growth of 58.7% yoy to Rs31.2 bn. EBITDA margins were
marginally down by 20 bps yoy to 11.9% and PAT at Rs2.6 bn was up 62.9% yoy in
9MFY11.
Strong revenue growth likely on execution pick-up in large orders and low base
Thermax reported very strong revenues of Rs12.4 bn, up 66% yoy, significantly ahead
(about 11.6%) of our estimates of Rs11.1 bn. The strong revenue growth is likely to have
been led by a pick-up in execution of large orders in the company’s backlog. The yoy growth
was also aided by a low base effect of 3QFY10 – revenues had declined by about 7.9% in
3QFY10.
EBITDA margin likely supported by operating leverage; contribution margin declines
EBITDA margin at 11.8% was broadly in line with our estimate of 11.5% and relatively flat
on a yoy basis. However, contribution margins have declined substantially. Raw material cost
as a percentage of sales increased by about 480 bps yoy in 3QFY11. This was offset by
about 280 bps yoy decline in other expenses and 180 bps yoy decline in employee costs as
a percentage of sales likely based on operating leverage. For 9MFY11 contribution margins
have contracted by 490 bps while the EBITDA margin has remained stable (20 bps decline)
because of operating leverage from strong revenue growth. The increase in contribution
margins indicates increase in share of project based business for Thermax.
Both segments record revenue growth, environment segment margins dip
Both the energy as well as environment segments recorded very strong yoy revenue growth
in 3QFY11. The energy segment revenues grew by 77% yoy to Rs9.9 bn in 3QFY11 from
Rs5.6 bn in 3QFY10 with EBITDA margins flat at 10.8%. The environment segment revenues
also grew strongly by 45% to Rs2.9 bn although margins contracted 140 bps to 13.6%
from 15% in 3QFY10. on a qoq basis, environment EBIT margin rose by 120 bps. The yoy
decline in environment segment margins were likely by higher raw material costs as well as
slightly lower margins on execution in large projects.
Order flows slow down for second consecutive month; visibility reducing
Thermax reported order inflows of Rs12.3 bn in 3QFY11 at a consolidated level, down 20%
yoy. This is the second consecutive quarter where Thermax has reported strong de-growth in
order inflows. Order inflows in 2QFY11 were down about 35% on a yoy basis. For 9MFY11
order inflows are Rs42.9 bn, down 7% yoy. We believe that Thermax would require much
stronger order inflows to maintain growth visibility given the strong scale-up in revenues
(59% growth in 9MFY11).
Segment projections reasonable as we build moderate growth and execution
We believe our segmental assumptions are reasonable as we have built:
Large power plants. 2-3 utility or large captive orders (up to 300 MW) in FY2011E and
FY2012E each, with a gradual pick-up in execution of large orders. Thermax has already
secured a Rs6 bn captive order in FY2011E. We have assumed that EBIT margin in large
orders would be about 100-200 bps below core energy segment business.
Core energy business. Moderate 10% growth in inflows in the core energy business
(excluding utility orders) with lower execution rate than historical as orders size increases.
Environment segment. Assume 10-15% growth in order inflows in environment
segment with lower execution rate than historical as order size increases.
Revise estimates based on lower large utility order flows
We revise our revenue estimates to Rs30.7 and Rs39.8 for FY2011E and FY2012E from
Rs31.5 and Rs42.3, respectively, based on lower large utility orders. We have
correspondingly revised our target price to Rs910 (from Rs965) comprised of (1) Rs835/
share for the core business (implying 21X P/E on FY2012E EPS) and (2) Rs75/share for 51%
stake in a supercritical JV with B&W. Thermax has traded at an average P/E of 18X over the
past five years and we have used a 15% premium to historical average on evidence of scaleup
towards (1) full EPC of larger captive/small utility plants in standalone and (2) supercritical
utility plants through JV.
We reiterate our BUY rating on the company based on (1) strong revenue growth and
profits in 3Q, (2) strong expansion of business opportunity: Company reported positive
performance on scale-up in supercritical JV + expansion in product portfolio to include items
such as ESP and heat transfer equipment, (3) extremely strong balance sheet, negative
working capital, among the strongest corporate governance and (4) among the bestpositioned
to benefit from growing capex environment.
Key risks to our estimates include (1) slower-than-expected execution of large orders, (2)
margin and working capital pressure as execution of large-sized orders ramp up and (3)
delays in setting up supercritical JV facility and winning large utility orders.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Thermax (TMX)
Industrials
Strong results but concern on inflows remains. Thermax reported strong 3QFY11
revenue growth of 66% yoy (11.6% above estimates) likely led by pick-up in execution
of large orders and low base effect of 3QFY10—both segments record strong revenues.
Net PAT at Rs1 bn was up 77% yoy. Contribution margin declined sharply by 480 bps
indicating increase in share of project business. Order inflows continued to remain
relatively sedate in 3Q as well, recording a yoy decline of about 20%.
Strong revenues beat estimates; maintains EBITDA margin though contribution margin declines
Thermax reported strong revenues of Rs12.4 bn, up 66% yoy and significantly ahead (11.6%) of
our estimates likely led by a pick-up in execution of certain large orders and also aided by low base
effect (revenues had recorded an 8% yoy decline in 3QFY10). EBITDA margin at 11.8% was
broadly in line with our estimate. Contribution margin contracted by 480 bps yoy possibly due to
increase in share of project business. The margins for the quarter were likely supported by
operating leverage (on the back of strong revenue growth). Thermax reported a net PAT of Rs1 bn,
up 77% yoy from Rs565 mn in 3QFY10 and 13% ahead of our estimate of Rs884 mn.
Both segments record strong revenue growth but decline in energy segment margins a worry
Both the energy as well as environment segments recorded very strong yoy revenue growth of
77% and 45% yoy, respectively. The energy segment maintained EBIT margins at 10.8%; however;
the environment margin contracted 140 bps yoy. The margin decline was potentially led by higher
raw material costs as well as slightly lower margins on execution in large projects.
Order activity just about keeps pace; would require stronger order booking to maintain visibility
Thermax reported order inflows of Rs12.3 bn in 3QFY11, down 20% yoy. This is the second
consecutive quarter where Thermax has reported strong de-growth in order inflows. For 9MFY11
order inflows are Rs42.9 bn, down 7% yoy. We believe that Thermax would require much
stronger order inflows to maintain growth visibility given the strong scale-up in revenues.
Revise earnings based on lower large utility orders; retain BUY
We revise our revenue estimates to Rs.30.7 and Rs39.8 for FY2011E and FY2012E, respectively,
from Rs31.5 and Rs42.3 based on lower large utility orders. We have correspondingly revised our
target price to Rs910 (from Rs965) comprised of (1) Rs835/ share for the core business (implying
21X P/E on FY2012E EPS) and (2) Rs75/share for 51% stake in a super critical JV with B&W. We
reiterate our BUY rating based on (1) likely strong revenue growth, (2) strong expansion of
business opportunity, (3) extremely strong balance sheet and (4) among the best-positioned to
benefit from growing capex environment.
Strong revenue growth; maintains EBITDA margins but contribution margin falls
Thermax reported revenue of Rs12.4 bn (up 66% yoy) in 3QFY11. EBITDA margin at 11.8%
for 3QFY11 was broadly in line with estimates and relatively flat on a yoy basis. Thermax
reported a net PAT of Rs1 bn, up 77% yoy from Rs565 mn in 3QFY10 and 15.3% ahead of
our estimate of Rs869 mn. For the nine months ending December 31, 2010, Thermax has
reported a strong revenue growth of 58.7% yoy to Rs31.2 bn. EBITDA margins were
marginally down by 20 bps yoy to 11.9% and PAT at Rs2.6 bn was up 62.9% yoy in
9MFY11.
Strong revenue growth likely on execution pick-up in large orders and low base
Thermax reported very strong revenues of Rs12.4 bn, up 66% yoy, significantly ahead
(about 11.6%) of our estimates of Rs11.1 bn. The strong revenue growth is likely to have
been led by a pick-up in execution of large orders in the company’s backlog. The yoy growth
was also aided by a low base effect of 3QFY10 – revenues had declined by about 7.9% in
3QFY10.
EBITDA margin likely supported by operating leverage; contribution margin declines
EBITDA margin at 11.8% was broadly in line with our estimate of 11.5% and relatively flat
on a yoy basis. However, contribution margins have declined substantially. Raw material cost
as a percentage of sales increased by about 480 bps yoy in 3QFY11. This was offset by
about 280 bps yoy decline in other expenses and 180 bps yoy decline in employee costs as
a percentage of sales likely based on operating leverage. For 9MFY11 contribution margins
have contracted by 490 bps while the EBITDA margin has remained stable (20 bps decline)
because of operating leverage from strong revenue growth. The increase in contribution
margins indicates increase in share of project based business for Thermax.
Both segments record revenue growth, environment segment margins dip
Both the energy as well as environment segments recorded very strong yoy revenue growth
in 3QFY11. The energy segment revenues grew by 77% yoy to Rs9.9 bn in 3QFY11 from
Rs5.6 bn in 3QFY10 with EBITDA margins flat at 10.8%. The environment segment revenues
also grew strongly by 45% to Rs2.9 bn although margins contracted 140 bps to 13.6%
from 15% in 3QFY10. on a qoq basis, environment EBIT margin rose by 120 bps. The yoy
decline in environment segment margins were likely by higher raw material costs as well as
slightly lower margins on execution in large projects.
Order flows slow down for second consecutive month; visibility reducing
Thermax reported order inflows of Rs12.3 bn in 3QFY11 at a consolidated level, down 20%
yoy. This is the second consecutive quarter where Thermax has reported strong de-growth in
order inflows. Order inflows in 2QFY11 were down about 35% on a yoy basis. For 9MFY11
order inflows are Rs42.9 bn, down 7% yoy. We believe that Thermax would require much
stronger order inflows to maintain growth visibility given the strong scale-up in revenues
(59% growth in 9MFY11).
Segment projections reasonable as we build moderate growth and execution
We believe our segmental assumptions are reasonable as we have built:
Large power plants. 2-3 utility or large captive orders (up to 300 MW) in FY2011E and
FY2012E each, with a gradual pick-up in execution of large orders. Thermax has already
secured a Rs6 bn captive order in FY2011E. We have assumed that EBIT margin in large
orders would be about 100-200 bps below core energy segment business.
Core energy business. Moderate 10% growth in inflows in the core energy business
(excluding utility orders) with lower execution rate than historical as orders size increases.
Environment segment. Assume 10-15% growth in order inflows in environment
segment with lower execution rate than historical as order size increases.
Revise estimates based on lower large utility order flows
We revise our revenue estimates to Rs30.7 and Rs39.8 for FY2011E and FY2012E from
Rs31.5 and Rs42.3, respectively, based on lower large utility orders. We have
correspondingly revised our target price to Rs910 (from Rs965) comprised of (1) Rs835/
share for the core business (implying 21X P/E on FY2012E EPS) and (2) Rs75/share for 51%
stake in a supercritical JV with B&W. Thermax has traded at an average P/E of 18X over the
past five years and we have used a 15% premium to historical average on evidence of scaleup
towards (1) full EPC of larger captive/small utility plants in standalone and (2) supercritical
utility plants through JV.
We reiterate our BUY rating on the company based on (1) strong revenue growth and
profits in 3Q, (2) strong expansion of business opportunity: Company reported positive
performance on scale-up in supercritical JV + expansion in product portfolio to include items
such as ESP and heat transfer equipment, (3) extremely strong balance sheet, negative
working capital, among the strongest corporate governance and (4) among the bestpositioned
to benefit from growing capex environment.
Key risks to our estimates include (1) slower-than-expected execution of large orders, (2)
margin and working capital pressure as execution of large-sized orders ramp up and (3)
delays in setting up supercritical JV facility and winning large utility orders.
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