Prabhudas Lilladher's research report on Thermax
Thermax (TMX) reported a robust revenue growth of 57.2% YoY, while margins were impacted in Q1FY23, largely due to higher commodities prices, higher freight cost witnessed in chemical segments and execution of legacy FGD order in Environment segment. We expect margins to improve from Q2FY23 given 1) improvement in chemical segment with commodity prices softening and better product mix, 2) execution of two new FGD orders (slightly better compared to previous ones) and 3) margin revival in energy segment due to softening of key commodities prices. Enquiries pipeline remains strong from sectors such as refinery, steel, power and chemicals while some slowdown may be witnessed in large steel projects. Thermax is well placed to gain from increasing thrust on clean energy & decarbonization initiatives and broad base recovery in private capex because of its 1) technical expertise, 2) strong balance sheet and 3) prudent working capital management. Given strong order book, healthy enquiry pipeline, better execution and margin revival, we expect TMX to report, revenue/PAT CAGR of 18.7%/35.5% between FY22-24E.
Outlook
At CMP stock is trading at 51.3x/39.6x for FY23/24E. We maintain ‘Accumulate’ rating on stock with revise TP of Rs2,190 (Rs2,181 earlier), valuing it at PE of 43x FY24E EPS.
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