Accumulate Thermax; target of Rs 553: PLilladher

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Accumulate Thermax; target of Rs 553: PLilladher

Prabhudas Lilladher is bullish on Thermax and has recommended accumulate rating on the stock with a target of Rs 553 in its February 03, 2012 research report.

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Prabhudas Lilladher is bullish on Thermax and has recommended accumulate rating on the stock with a target of Rs 553 in its February 03, 2012 research report.

"Thermax, revenues grew by 2.3% YoY at Rs12.69bn; below our expectation of Rs13.45bn . The energy segment stood at Rs9.9bn (~up by 0.3%) and environment segment reported Rs3.02bn (~up by 2.8%). EBITDA margins were down by 110bps at 10.7%, from 11.8% YoY, slightly below our expectation of 11%, mainly driven by forex impact of 100bps. However, sequentially, margins have improved slightly by 10bps due to a tight control over raw material costs and fixed costs. EBIT margin for the energy segment stood at 9.5% (down by 130bps) YoY and that of environment segment stood at 13% (down by 60bps) YoY. Increase in the depreciation cost by 13.5% at Rs120m, resulted in de-growth of PAT at Rs955m (down by 4.7%), lower than our estimate of Rs1,040m."

"On a standalone basis, order flow for the quarter was Rs5.9bn, down 36% YoY and order book stood at Rs51.04bn, down 28.7% YoY. Order inflows year-to-date stood at Rs32.23bn (down 20%) YoY. Major contributors to the order inflow for these orders were Power-40%, Food & processing - 7%, Chemicals - 8%, Ferrous metal - 6% etc. Power, Oil & Gas, Cement and steel sector orders continue to be slack. However, the company expects that with the demand for the Cement sector expected to rise, it will start ordering in the next 2-3 quarters. Though the pipe-line for LPP was not very strong in Q4FY12, it expects few enquiries and negotiations to happen in Q1FY13. It expects the recovery in order flow in FY13, primarily to come from sectors like Steel, Cement and Oil Gas."

"The stock is trading at 16.5x FY12E earnings. We have downgraded our earnings for FY12 and FY13 by 2% & 17%, respectively, to factor in weak order flows. We believe that though the next few quarters will be weak in terms of earnings and order flow, Thermax's ability to bag base orders of ~ Rs5-6bn per quarter gives us a confidence that it will be able to tide the slowdown and participate in the upturn of the cycle meaningfully and surprise positively in terms of order flow. Expectation of rate cut aiding recovery of capex cycle will also help support multiples. We would be buyer on weakness in Thermax. We maintain our Accumulate rating on the stock," says Prabhudas Lilladher research report.

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