AccumulateThermax; target of Rs 521: PLilladher

Prabhudas Lilladher is bullish on Thermax and has recommended accumulate rating on the stock with a target of Rs 521 in its July 27, 2012 research report.

“Thermax (TMX) reported sales de-growth of 6% YoY at Rs9.8bn below our estimate of Rs8.8bn due to lower carry-forward orders. The Energy segment reported de-growth of 4.6% YoY to Rs7.6bn and Environment segment reported sales de-growth of 8% YoY to Rs2.4bn. EBITDA margin declined 110bps YoY at 9.8% below our estimate of 11% due to 25% rise in other expenses YoY (forex loss of Rs120m). Adj. for forex loss, the margin came in at 11%. Weak reported margin and higher finance cost led to PAT decline of 16% YoY at Rs673m.”

“TMX reported standalone order inflow of Rs12.58bn (down 13% YoY and up 56% QoQ) and order book of Rs44.7bn on a standalone basis. In the current quarter, TMX bagged orders for US$26.5m from a cement company in Zambia. TMX has couple of more inquiries from the African and South Asian continents and is hopeful of closing few more orders coming from outside India for EPC. The company also received two other major orders, one from Kalinganagar Steel plant (Rs2.8bn) for blast furnace gas side boiler and from Reliance for their expansion program (Rs1.8bn) for heat recovery sink generators and radiant boilers. Outlook on captive power business in the domestic market is encouraging over the medium term (1-2 years). However, in the near term, it expect ordering to be subdued due to low traction in major user industries like Cement and Steel. It also highlighted that cement players in the North can come up with enquiries in H2FY13, given the high utilization (running at ~90% currently).”

“The stock is trading at 15.7x FY14E earnings. We believe that the next few quarters will be challenging in terms of earnings and order flow. TMX’s ability to bag base orders of ~Rs7-8bn 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. We would be buyer on weakness in TMX. We maintain our ‘Accumulate’ rating on the stock,” says Prabhudas Lilladher research report. 

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