Sell Thermax: Way2Wealth

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Sell Thermax: Way2Wealth

Way2Wealth is bearish on Thermax and has recommended sell rating on the stock, in its February 7, 2012 research report.

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Way2Wealth is bearish on Thermax and has recommended sell rating on the stock, in its February 7, 2012 research report.

"Thermax results were in line with street estimates, but remained quite skeptical about order inflow growth in FY13. Consolidated Order backlog for 9MFY12 stood @Rs.58bn down by 9% yoy reducing its revenue visibility to ~12Mths, whereas order inflows @Rs.32bn were down phenomenally by 20%, depicting a severe blow to its financials in FY13. Net sales for 9MFY12 were up by 18% @Rs.35bn whereas PAT was up by 8% witnessing growth from the Environment & Energy segment."

"The Standalone order backlog for Q3FY12 stood at Rs.51bn down 20% yoy as against Rs.64bn. Energy segment comprised 79% whereas the Environment segment comprised 21% of the O/B. Order inflows on a standalone basis for Q3FY12 stood @Rs.5.9bn sharply down by 40% due to high competition & dearth of order inflows plaguing the sector. Standalone net sales have grown by 4% witnessing flat growth from the Energy segment & 3% growth from the Environment segment. Lower cost of raw materials has been offset by incremental purchase of traded goods. Overall expenses have been adequately controlled keeping it almost flat@90% of its sales. Forex loss has impacted its overall expenses by more than 100bps. With high interest cost & incremental depreciation cost by 14%, PAT has degrown by 5% with reduced margins @7.6% yoy against 8.2%."

"At its CMP of Rs.501, the stock trades at 16x FY13E EPS of Rs.31 which we believe it to be very high given its reduced revenue visibility & in comparison to its peers which are quoting at a lower multiple of 10-12x. We give a SELL rating to the stock, until the macro economic conditions bring about a whirlwind change to this stagnated sector," says Way2Wealth research report.

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To read the full report click on the attachment