Accumulate Thermax; target of Rs 648: PLilladher

Prabhudas Lilladher's research report on Thermax

Thermax expects a growth in order inflow in FY14 and maintain margins in double- digits: TMX has been maintaining its order inflow run-rate of ~Rs12bn per quarter for the last 3-4 quarters in this environment. Even in the current quarter, the company is confident of maintaining a healthy order inflow runrate. The company is quite confident of growing order inflow in FY14 by 8-10% even on a higher base. The key sectors which the company is looking at for order inflow includes Steel, Cement, Oil&Gas. The optimism is largely coming from visible pipeline of orders, good enquiry levels and expectation of recovery in the second half of FY14. The company is also looking at improved traction in export markets like Middle East, Africa and South East Asia. While the company acknowledges the fact that margins are under pressure due to high competition in the market, it believes double-digit margins could be maintained due to tight cost controls by the management and increased contribution from export markets. Working towards being a USD 2bn in sales over the next 4-5 years: TMX aspires to become a USD 2bn company over the next 4-5 years from USD 1bn currently. The journey will largely be driven by increasing application of the current product portfolio and increasing export foot prints (plans to add USD 100m from each of the geographies like Africa, South East Asia, Middle East and Rest of world). The current export base is ~USD 200m; it aspires to reach USD 600m in exports. Apart from growing its current portfolio, TMX is working on new product lines in areas of Air pollution, Water, Energy and Defence which will also add significantly to growth in the next few years. The company has set a target for itself that one-third of the revenues should come from new business areas, going forward. Outlook and Valuation: TMX’s ability to bag base orders of ~Rs7-8bn per quarter, increasing market share and strong management pedigree gives us confidence that it will be able to tide the slowdown and participate in the upturn of the cycle meaningfully and continues to surprise positively in terms of order flow. We believe TMX will continue to benefit from continued power shortage and strong product portfolio. The stock is trading at 18x FY14E earnings. We continue to maintain ’Accumulate’ on the stock with a price target of Rs 648. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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