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Thermax ------------------------------------------------------------------------- Maintain OUTPERFORM
1Q beats estimates; All rests on IPP order wins
● 1Q was a good quarter for Thermax with revenues up over 30%
and PAT up 21% YoY. Order inflows were down 17% YoY but
base comparisons were difficult and, given weak ordering in the
market, this reflects market share gains in the core business.
● Earnings momentum for Thermax may have peaked and at the
current run rate of order inflows, it is likely that 2H earnings could
head into the negative territory (Most large order execution will
also complete in early FY12).
● The story for Thermax is more about its ability to win orders in the
subcritical IPP and supercritical spaces. With B&W in partnership
with Toshiba for BTG bidding globally, Thermax also intends to do
joint bids for BTG in India. Management remained confident about
the business model despite price declines in recent orders.
● Our EPS estimates for FY12 are achievable, however FY13
numbers depend on its ability to win orders in the IPP space. Core
business can support a stock price of Rs500-550, in our view.
Maintain OUTPERFORM
Management conference call takeaways
Management highlighted that in case the economy does not start
decelerating, order booking will continue to lead invoicing. Delays
were seen in order awards due to sharp increase in interest rates.
Management maintained that, despite marginal negative sentiment in
the market, commodity prices have not weakened considerably and at
least two more interest rates hikes are expected.
Sales Mix and Order Book
Revenue growth in Q1 was led by ~28.3% YoY growth in domestic
sales and exports growing by ~54.1% YoY. Standalone order inflow
was ~Rs14,440 mn vs. ~Rs17,320 mn in Q1FY11. Order inflow
breakup for the standalone entity was – Energy: ~Rs11,700 mn;
Environment – Rs3,270 mn; order book breakup:– Energy ~Rs48,050
mn; Environment – Rs10,840 mn. Consol order inflow breakup was –
Energy ~Rs13,530 mn; Environment – Rs3,350 mn; order book
breakup – Energy ~Rs57,140 mn; Environment – Rs10,900 mn.
Sectoral order inflow breakup for Q1 was –- (1) Ferrous metals 34%,
(2) Textiles 22.5% (on account of large order), (3) Cement 12%, (4)
Power 9%, (5) Sugar 5%, (6) Mining 4.5%, (7) Food processing 4%.
Major order awards in Q1 were – (1) EPC order for CPP of 332 MW
(~Rs4,000 mn) from a textile fibre manufacturing company, (2) BTG
order for CPP of 120MW (~Rs3,150 mn) from a steel company
(turbine from Siemens , boiler to be supplied by Thermax).
As per management, revenue growth seen in Q1FY12 may not be
sustained going forward.
Margins
Management highlighted margins can dip in EPC segment due to
increased competitive intensity but costs would be pruned through
supplier relationships and design optimization. Management expects
current margins to sustain going forward in FY12, however, margin
expansion is expected in the medium term as other businesses grow.
Subsidiary performance
Management commented that all subsidiaries were profitable in
Q1FY11 but double-digit margins will be achieved only in the next
three years (FY11 margins will be ~4-5%). However, Chinese
subsidiary will continue to make loss in FY12. Subsidiaries such as
Thermax Instrumentation will continue to have low margins owing to
EPC nature of business. Management commented that Danstoker’s
order booking (despite tough conditions in Europe) is growing in
double digits with profitability expected to sustain at current levels
except some one-offs.
LPP business
Management maintained that in the subcritical EPC segment, prices
offered by Thermax will be competitive due to supplier costs declining.
Although order finalisations were nil in Q1, order award scenario may
improve in FY13. Management highlighted Thermax has prequalified
for the 9 x 800 MW NTPC bulk tender order and technical discussions
are on with NTPC. As per management, Thermax would start BTG
offering with Toshiba by FY12 end. Management maintained that it
can start delivering equipment by FY13, (B&W facility coming up by
Sep 12). Revenue recognition typically starts within six months of the
award and peaks 18 months after the award.
Large order execution
SAIL order has been progressing satisfactorily and will be executed by
FY12 end (most revenues have been recognized). About ~70%
revenues have been recognized in the Meenakshi project and
commissioning target is March 2012. In the ~Rs5,800 mn refinery
order, ~75-80% order will be executed in FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Thermax ------------------------------------------------------------------------- Maintain OUTPERFORM
1Q beats estimates; All rests on IPP order wins
● 1Q was a good quarter for Thermax with revenues up over 30%
and PAT up 21% YoY. Order inflows were down 17% YoY but
base comparisons were difficult and, given weak ordering in the
market, this reflects market share gains in the core business.
● Earnings momentum for Thermax may have peaked and at the
current run rate of order inflows, it is likely that 2H earnings could
head into the negative territory (Most large order execution will
also complete in early FY12).
● The story for Thermax is more about its ability to win orders in the
subcritical IPP and supercritical spaces. With B&W in partnership
with Toshiba for BTG bidding globally, Thermax also intends to do
joint bids for BTG in India. Management remained confident about
the business model despite price declines in recent orders.
● Our EPS estimates for FY12 are achievable, however FY13
numbers depend on its ability to win orders in the IPP space. Core
business can support a stock price of Rs500-550, in our view.
Maintain OUTPERFORM
Management conference call takeaways
Management highlighted that in case the economy does not start
decelerating, order booking will continue to lead invoicing. Delays
were seen in order awards due to sharp increase in interest rates.
Management maintained that, despite marginal negative sentiment in
the market, commodity prices have not weakened considerably and at
least two more interest rates hikes are expected.
Sales Mix and Order Book
Revenue growth in Q1 was led by ~28.3% YoY growth in domestic
sales and exports growing by ~54.1% YoY. Standalone order inflow
was ~Rs14,440 mn vs. ~Rs17,320 mn in Q1FY11. Order inflow
breakup for the standalone entity was – Energy: ~Rs11,700 mn;
Environment – Rs3,270 mn; order book breakup:– Energy ~Rs48,050
mn; Environment – Rs10,840 mn. Consol order inflow breakup was –
Energy ~Rs13,530 mn; Environment – Rs3,350 mn; order book
breakup – Energy ~Rs57,140 mn; Environment – Rs10,900 mn.
Sectoral order inflow breakup for Q1 was –- (1) Ferrous metals 34%,
(2) Textiles 22.5% (on account of large order), (3) Cement 12%, (4)
Power 9%, (5) Sugar 5%, (6) Mining 4.5%, (7) Food processing 4%.
Major order awards in Q1 were – (1) EPC order for CPP of 332 MW
(~Rs4,000 mn) from a textile fibre manufacturing company, (2) BTG
order for CPP of 120MW (~Rs3,150 mn) from a steel company
(turbine from Siemens , boiler to be supplied by Thermax).
As per management, revenue growth seen in Q1FY12 may not be
sustained going forward.
Margins
Management highlighted margins can dip in EPC segment due to
increased competitive intensity but costs would be pruned through
supplier relationships and design optimization. Management expects
current margins to sustain going forward in FY12, however, margin
expansion is expected in the medium term as other businesses grow.
Subsidiary performance
Management commented that all subsidiaries were profitable in
Q1FY11 but double-digit margins will be achieved only in the next
three years (FY11 margins will be ~4-5%). However, Chinese
subsidiary will continue to make loss in FY12. Subsidiaries such as
Thermax Instrumentation will continue to have low margins owing to
EPC nature of business. Management commented that Danstoker’s
order booking (despite tough conditions in Europe) is growing in
double digits with profitability expected to sustain at current levels
except some one-offs.
LPP business
Management maintained that in the subcritical EPC segment, prices
offered by Thermax will be competitive due to supplier costs declining.
Although order finalisations were nil in Q1, order award scenario may
improve in FY13. Management highlighted Thermax has prequalified
for the 9 x 800 MW NTPC bulk tender order and technical discussions
are on with NTPC. As per management, Thermax would start BTG
offering with Toshiba by FY12 end. Management maintained that it
can start delivering equipment by FY13, (B&W facility coming up by
Sep 12). Revenue recognition typically starts within six months of the
award and peaks 18 months after the award.
Large order execution
SAIL order has been progressing satisfactorily and will be executed by
FY12 end (most revenues have been recognized). About ~70%
revenues have been recognized in the Meenakshi project and
commissioning target is March 2012. In the ~Rs5,800 mn refinery
order, ~75-80% order will be executed in FY12.
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