Reduce Thermax; target of Rs 456: Angel Broking

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Reduce Thermax; target of Rs 456: Angel Broking

Angel Broking is bearish on Thermax and has recommended reduce rating on the stock with a target of Rs 456 in its February 3, 2012 research report.

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Angel Broking is bearish on Thermax and has recommended reduce rating on the stock with a target of Rs 456 in its February 3, 2012 research report.

"Thermax 3QFY2012 number were broadly in line were estimates - high base created in corresponding period last year masked down the top-line growth, thus leading to a subdued earnings growth, as expected. The company also reported a 40% yoy decline in order intake, which was below the expectations. Amidst weakened business environment, we remain cautious with downward bias over the order intake for next couple of quarters, and accordingly lower our estimates by for FY2012/FY2013E. We downgrade the stock to Reduce with a target Price of Rs456 and a potential downside of ~13%."

"For 3QFY2012, Thermax posted a muted growth of 2.3% yoy to Rs1,269cr (Rs1,241cr) which was marginally higher than our estimate of Rs1,204cr. The muted growth was along expected lines, mainly on account of high base created in 3QFY2011. Segment wise, the energy segment posted flat growth to Rs993.1cr, while the environment segment grew by 2.8% yoy to Rs302.4cr (Rs294.3cr). On the operating front, EBITDA margin witnessed a contraction of 114bp yoy to 10.7% again in line of expectations. Muted topline growth and margin compression led to PAT decline of 4.7% yoy to 95.3cr (Rs100.2cr), slightly higher than our estimates of Rs89.4cr."

"The stock has witnessed decent rally >25% in the past one month, vindicating our positive stance, and is currently trading at PE multiples of 17.2x FY2013E EPS, premium to other capital goods company which we believe is unjustifiable. Hence, we expect the stock to underperform and downgrade the stock to Reduce from Buy with a Target Price of Rs456 implying a potential downside of ~13% from current levels. We recommend long term investors to wait for better entry points given next couple of quarters are we expect decline on earnings and order inflow front," says Angel Broking research report. 

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