Valuations ahead of fundamentals Thermax :: HDFC Sec, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Valuations ahead of fundamentals Thermax reported below estimate 3QFY15 PAT of Rs 762mn driven by lower than estimated other income. Operationally, results were in line. Order inflow of Rs 12.3bn (-10% YoY) was also in line with estimates. Standalone order backlog declined 11% YoY to Rs 51bn. Domestic order inflows are yet to pick up in a meaningful way and we expect Thermax to begin FY16 with a lower backlog (Rs 49bn) compared to beginning of FY15 (Rs 54bn). Thus revenue growth will be a challenge in FY16. We reduce our FY16/17E EPS by 17/11% as revival in order inflows has taken longer than expected. We do not see any evidence as yet of a sharp recovery in capex cycle in FY16 (as factored in the current valuations) and hence will be cautious at current levels (35x FY16E EPS), notwithstanding the underlying quality of business which remains great. Downgrade to SELL (from Neutral) with a revised TP of Rs939/sh (from Rs 951), based on 22x FY17E EPS.  Standalone order inflow was Rs 12.3bn (-10% YoY, +13% QoQ). Consolidated order inflow for the quarter was Rs 14.8bn. Order inflow was aided by a captive power order of Rs 3.5bn from African market. Export orders contributed 70% to standalone inflows for 3QFY15.  Management mentioned that domestic order inflow has shown no signs of pickup. In our view, a capex pick up in steel and cement sectors (company’s primary customers) will have to be preceded by as sustained high in capacity utilisation (80%+) which currently languishes below 75%. Power generation capex outlook also continues to be bleak with private sector engaged primarily in balance sheet deleveraging.  Despite no improvement in fundamentals, valuations have already breached peak FY08 levels. Ours (and consensus) estimates factor in a sharp recovery in order inflows and earnings. A combination of peak valuation and optimistic estimates make risk reward clearly unfavorable in our view. Downgrade to SELL.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011098