Accumulate Thermax; target of Rs 637: P Lilladher
Brokerage house Prabhudas Lilladher is bullish on Thermax (TMX) and has recommended 'Accumulate' rating on the stock with a price target of Rs 637 in its research report dated November 07, 2013.
November 09, 2013 / 15:24 IST
Prabhudas Lilladher's report on Thermax (TMX)
"Thermax (TMX) reported Adj. PAT of Rs 592, down 35 percent YoY, lower than our and street estimate, largely on account of lower margins. Though order inflow was supported by base businesses orders, the inflow was below trend due to lack of large orders in both domestic and export markets. TMX's ability to bag base orders of ~Rs 7-8bn 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. TMX will continue to benefit from continued strong product portfolio and increasing traction in exports market. Though we continue to be positive on medium/long term potential of the company, we believe, given slightly expensive valuation, we expect the stock to underperform in the near term.""TMX reported sales de-growth of 12.5 percent YoY to Rs 10.4bn. Strong growth in service revenue (up 18 percent YoY) and export sales (up 35 percent YoY) cushioned the impact of weak domestic execution to an extent. EBITDA was down 23 percent YoY to Rs 935m, EBITDA margins were down 130bps YoY to 9 percent. Lower fixed cost absorption due to lower sales led to lower margins YoY. Reported PAT de-grew by 67 percent YoY as company made provisions worth Rs 290m in tax expense for inadmissibility of certain businesses expense incurred in earlier years. Adj. for the same, PAT was 35 percent YoY at Rs 592m.""TMX reported order inflow of Rs 7.5bn on a standalone basis down 35 percent YoY. The major sectors contributing to order inflow were Food processing, Chemicals, Refinery, Sugar, Sponge Iron etc. The below trend order inflow was on account of the fact that no major large order was finalised in the quarter and inflow was largely supported by base businesses orders. Export markets enquiries, especially in South East Asia/Middle East markets, have seen improvement for project businesses but no remarkable improvement for product businesses.""The PBT of subsidiaries improved substantially in Q2FY14 (Rs 91m in Q2FY14, Rs 5.5m in Q1FY14). The management attributed improvement to strong performance by Danstoker and improvement in China subsidiary. Favourable currency, better product mix and few high margin orders helped Danstroker report strong numbers. TMX China subsidiary is expected to achieve cash breakeven by year end. It also expects losses in TMX instrumentation to reduce over the course of the year. The TMX B&W JV has reported loss of 90m in Q2FY14. The factory is ready to start commercial operations and TMX is scouting for orders to fill the factory. TMX is planning to execute part of Reliance order in BTG JV to ensure faster execution and start utilization of factory/resources."Outlook and Valuation: "TMX's ability to bag base orders of ~Rs 7-8bn 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 and increasing traction in exports market. The stock is trading at 18x FY15E earnings. Though we continue to be positive on medium/long term potential of the company, we believe, given slightly expensive valuation, we expect the stock to underperform in the near term. We continue to maintain 'Accumulate' on the stock with a target price of Rs 637," says Prabhudas Lilladher research report.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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