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Positive on recovery; cautious on timing. 3QFY15 reflects continued weakness in domestic ordering being made good by overseas (grew 2X yoy). The domestic business may take another year, or so, to revive, eventually benefitting from various government initiatives. Overseas will support business in the interim, as the company takes its strategy of selective internationalization to the next level. Thermax is well-poised to capitalize on the economic recovery but its current price seems to have factored in a very sharp recovery, potentially leaving little scope for disappointment versus expectations.
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Exports accounting for majority of incremental business; outlook positive Exports order inflows (>2X yoy) accounted for the majority of order inflows for the second consecutive quarter, supporting `12 bn quarterly run-rate for Thermax. Outlook for the business is positive for both (1) conventional products, where Thermax aims to increase reach, and (2) EPC business, where Thermax would bid for similar captive power orders incrementally. The medium-term risk to Thermax’s overseas business is less from fall in oil prices (limited direct exposure) and more from European firms turning price-competitive for Middle East/African orders as the euro depreciates. Domestic: unchanged on-ground situation; expects selective revival in coming quarters The domestic business remains weak in terms of order inflows (down 30% yoy in 3QFY15) and sedate enquiry base for large orders (limited to some captive power prospects from the South). Thermax, though, is hopeful of better ordering after a period of 3-4 quarters led by (1) interest shown by MNCs to set up domestic shops (food-processing, engineering, paper, pharma) and (2) initiatives taken by the government to make ‘Make in India’ a reality and (3) an improving macro environment (RBI hinting further rate cuts, sectoral bottlenecks being removed by the government). Subsidiaries: losses normalize after Omnical exit, TBW JV remains broadly similar We note marked reduction in losses of Thermax’s subsidiaries, excluding Omnical’s performance, which has been put under administration. TBW losses were broadly similar at `340 mn for the quarter versus `270-310 mn in 1Q/2Q. The other key subsidiaries have improved in business performance, with the same getting negated by closure of Omnical projects (guarantees). These include the (1) Indian construction subsidiaries (Thermax Engineering Construction, Thermax Instrumentation), which reported growth in revenues and positive PAT, (2) Indian turnkey subsidiary, Thermax Onsite Energy Solutions (TOSL), PAT positive, (3) Chinese subsidiaries (cash positive) and (4) Danstoker (overall negative, including Omnical). Downside risks to estimates persist We revise our estimates to `23.5, `32.1 and `38.8 from `24.2, `35.4 and `46.6 for FY2015-17E, largely on changes made to order inflow estimates (Exhibit 8). We maintain our REDUCE rating and TP; the probability of downside risks to our estimates remains higher than that of upside risks.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily03022015ga.pdf
Positive on recovery; cautious on timing. 3QFY15 reflects continued weakness in domestic ordering being made good by overseas (grew 2X yoy). The domestic business may take another year, or so, to revive, eventually benefitting from various government initiatives. Overseas will support business in the interim, as the company takes its strategy of selective internationalization to the next level. Thermax is well-poised to capitalize on the economic recovery but its current price seems to have factored in a very sharp recovery, potentially leaving little scope for disappointment versus expectations.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Exports accounting for majority of incremental business; outlook positive Exports order inflows (>2X yoy) accounted for the majority of order inflows for the second consecutive quarter, supporting `12 bn quarterly run-rate for Thermax. Outlook for the business is positive for both (1) conventional products, where Thermax aims to increase reach, and (2) EPC business, where Thermax would bid for similar captive power orders incrementally. The medium-term risk to Thermax’s overseas business is less from fall in oil prices (limited direct exposure) and more from European firms turning price-competitive for Middle East/African orders as the euro depreciates. Domestic: unchanged on-ground situation; expects selective revival in coming quarters The domestic business remains weak in terms of order inflows (down 30% yoy in 3QFY15) and sedate enquiry base for large orders (limited to some captive power prospects from the South). Thermax, though, is hopeful of better ordering after a period of 3-4 quarters led by (1) interest shown by MNCs to set up domestic shops (food-processing, engineering, paper, pharma) and (2) initiatives taken by the government to make ‘Make in India’ a reality and (3) an improving macro environment (RBI hinting further rate cuts, sectoral bottlenecks being removed by the government). Subsidiaries: losses normalize after Omnical exit, TBW JV remains broadly similar We note marked reduction in losses of Thermax’s subsidiaries, excluding Omnical’s performance, which has been put under administration. TBW losses were broadly similar at `340 mn for the quarter versus `270-310 mn in 1Q/2Q. The other key subsidiaries have improved in business performance, with the same getting negated by closure of Omnical projects (guarantees). These include the (1) Indian construction subsidiaries (Thermax Engineering Construction, Thermax Instrumentation), which reported growth in revenues and positive PAT, (2) Indian turnkey subsidiary, Thermax Onsite Energy Solutions (TOSL), PAT positive, (3) Chinese subsidiaries (cash positive) and (4) Danstoker (overall negative, including Omnical). Downside risks to estimates persist We revise our estimates to `23.5, `32.1 and `38.8 from `24.2, `35.4 and `46.6 for FY2015-17E, largely on changes made to order inflow estimates (Exhibit 8). We maintain our REDUCE rating and TP; the probability of downside risks to our estimates remains higher than that of upside risks.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily03022015ga.pdf
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