Accumulate Thermax; target of Rs 2556: Prabhudas Lilladher

Prabhudas Lilladher's research report on Thermax

Thermax (TMX) reported a healthy quarterly performance, with consolidated revenue growth of 41.2% YoY and order inflow growth of 8.6% YoY. Margins were impacted due to higher input cost in Energy and Chemical segment. Going forward, with revival in energy segment margins (on account of commodity softening) and chemical segment margins stabilizing, we expect overall margins to improve in coming quarters. Traction is being witnessed in base orders (Rs2-10bn orders) from sectors such as oil & gas, refinery, petrochemicals, steel etc., while large orders are witnessing slowdown. Though demand scenario continues to remain strong, growth in enquiry generation has witnessed moderation during the quarter, which may affect the order inflows in near term. Management highlighted that it will be selective in taking orders with focus on profitability. TMX is well placed to gain from increasing thrust on clean energy & decarbonization initiatives and broad base visibility in private capex given its 1) technical expertise, 2) strong balance sheet and 3) prudent working capital management.

Outlook

Given strong order book, better execution and likely margin revival, we expect TMX to report, revenue/PAT CAGR of 15.2%/28.9% between FY22-25E. Stock is currently trading at PE of 57x/45.8x/38.3x for FY23/24/25E. We roll forward to FY25E, with revised TP of Rs2,556 (Rs2,190 earlier) valuing it at PE of 43x FY25E and maintain ‘Accumulate’ rating on stock.

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