Hold Thermax; target Rs 495: Emkay

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Hold Thermax; target Rs 495: Emkay

Emkay Global Financial Services has maintained hold rating on Thermax with a target price of Rs 495 in its February 3, 2012 research report.

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Emkay Global Financial Services has maintained hold rating on Thermax with a target price of Rs 495 in its February 3, 2012 research report.

"Thermax, below estimates - (1) Revenue up 2% yoy to Rs12.7 bn (2) EBITDA% down 110 bps yoy to 10.7% (3) EBITDA down 7% yoy to Rs1.4 bn (4) APAT down 5% yoy to Rs955 mn. Order inflows decline 42% qoq to Rs7.5 bn - lower than quarterly run-rate of Rs12 bn. Order book declines 11% qoq to Rs58 bn and order book cover deteriorates to 1.0X revenues. Running weak order cover at 1.0X Revenues and ambiguity on near-term order inflows; Also investments in super-critical venture remains an overhang. Cut earnings by 7% and 11% for FY12E and FY13E on reduced order book visibility. No near term re-rating catalysts + risks to earnings exist. Downgrade to Hold with target of Rs495."

"After 6 quarters of strong performance, Thermax posted 5% yoy decline in net profits in Q3FY12 (on a high base of Q3FY11) - below estimates. This was due to (1) Muted revenue growth at 2% yoy to Rs12.7 bn - Energy (+0.3% yoy) & Environment (+3% yoy) (2) Continued pressure on operating margins (sequential decline for the 7th straight quarter) - down 110 bps yoy to 10.7%. Decline in margins was due to change in revenue mix, increase in raw material costs and forex loss of Rs0.15 bn. (3) EBITDA decreased by 7% yoy to Rs1.4 bn (4) Hence net profit declined by 5% yoy to Rs955 mn."

"Thermax has outperformed the ECG sector over the past 6 months by 25% - on back of strong order inflows (amongst few in the industry) and healthy earnings growth and debtfree balance sheet. It was amongst top pick in our ECG universe. But with order book cover deteriorating to 1.0X revenues and weak outlook for order inflows for next 2-3 quarters, Thermax is heading towards revenue and earnings decline in FY13E. Further, Thermax' investments in the super-critical venture is an overhang, since the investments could yield operating loss in near-term, which remains un-factored in our earnings assumption. With no near-term earnings and re-rating catalysts, we downgrade the stock from Accumulate to Hold with price target of Rs 495," says Emkay Global Financial Services research report.

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