Buy Thermax; target of Rs 1239: Karvy

Karvy Stock Broking's report on Thermax
We expect the investment announcements in B2B and B2C sectors which are currently at 21%-60% of total investments to contribute to order book growth at a CAGR of 7% during FY15-17E. Book-to-Bill ratio to improve to 1.14x by FY17E and standalone to contribute to over three-fourths of order book.

Boilers segment to grow above industry growth rate: Business mix to remain in favor of domestic business and consolidated revenues to grow at a CAGR of 8.4% during FY15-17E. Domestic boilers segment to contribute to over 60% of revenues by growing at a CAGR of 18% during FY15-17E. Power EPC, services to gain traction and contribute close to 20% of revenues by FY17E.

Exports business to contribute 35% by FY17E; manufacturing hub in Indonesia by FY18: Thermax has balanced mix of products and services exports. The company has presence in select markets in South-Asia(SA), African and Middle Eastern markets. To penetrate further into SA markets and localize supply chain, Thermax is investing US$25mn in setting up manufacturing hub in Indonesia for operations by FY18E. Resin facility at Dahej,Gujarat with investment of over Rs.1,500mn by end of FY17E.

Valuation and Outlook"We initiate coverage on Thermax with a ‘Buy’ rating for a target of Rs.1,239 representing an upside potential of 16% based on standalone FY17E EPS of Rs. 33.9 at 33.6x P/E (+1 SD on 1yr forward P/E during FY05-15) and added Book Value (BV) of investments in subsidiaries of Rs.41/share at 1x BV, subsidiaries could incur losses during FY16-17E", says Karvy Stock Broking research report.

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