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Thermax Ltd: Awaiting a pick-up in ordering - Views on News from Equitymaster
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Thermax Ltd: Awaiting a pick-up in ordering
Feb 5, 2015

Thermax has announced its third quarter (3QFY15) results. During 3QFY15, topline and bottomline grew by 13% YoY and 14% YoY respectively. Here is our analysis of the results.

Performance summary
  • Net sales grew by 13% YoY during 3QFY15.
  • Operating profits increased by 52% YoY during 3QFY15. Margins thus grew by 2.7% from 7.9% to 10.6%.
  • Profit after tax grew 14% YoY.
  • The consolidated order back log of the company stood at Rs 62.2 bn at the end of 3QFY15, compared to Rs 64.5 bn during the same quarter previous year, a fall of 4% YoY.

Standalone financial performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Income from operations  10,019 11,355 13.3% 42,400 31,475 -25.8%
Expenditure 9,229 10,152 10.0%  38,929 28,639 -26.4%
Operating profit (EBDITA) 789 1,203 52.4%  3,470 2,836 -18.3%
Operating profit margin (%) 7.9% 10.6%   8.2% 9.0%  
Other income 348  181 -47.9%   1,265 771 -39.0%
Interest 23 19 -16.6%  88 73 -17.7%
Depreciation 147 156 6.3%  578 488 -15.5%
Profit before tax 968 1,209 24.9%  4,069 3,046 -25.1%
Tax 301 447 48.5%   1,539 1,010 -34.4%
Profit after tax/(loss) 667 762 14.3%  2,530 2,036 -19.5%
Net profit margin (%) 6.7% 6.7%   6.0% 6.5%  
No. of shares         119.15  
Basic Diluted earnings per share (Rs)*         17.1  
P/E ratio (x)*         65.8  
* On a trailing 12-months basis

What has driven performance in 3QFY15?
  • The energy segment managed to see a robust increase in revenues of 20% YoY which propelled the growth in overall revenues; while environmental segment's revenues grew 4% YoY.

  • The margin expansion was led by a fall in raw material costs as well as staff costs as a percentage of sales. Other expenses as percentage sales, however, saw a marginal increase. EBIT margins in both the Energy segment and the Environment segment saw an expansion thus driving the company's operating margin expansion this quarter.

  • Standalone order inflows fell 10% YoY. The drop in order booking is attributable to the company's domestic segment where enquiry inflow and finalisation remained subdued.

  • Among the new contracts finalised during the quarter is a repeat order worth Rs 3.5 bn that the company received from a leading African industrial conglomerate to build and commission a captive power project for one of its cement plants.

    Segment-wise performance (Standalone)
      3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    Energy
    Revenue (Rs m) 7,671 9,208 20.0%  21,858 25,216 15.4%
    % share  75.1% 77.7%   74.2% 77.2%  
    PBIT margin 10.9% 11.5%   17.0% 10.5%  
    Environment
    Revenue (Rs m) 2,538 2,641 4.1%  7,620 7,435 -2.4%
    % share  24.9% 22.3%   25.8% 22.8%  
    PBIT margin 2.3% 7.3%   7.8% 6.6%  
    Total
    Revenue (Rs m)*    10,209 11,849 16.1% 29,477 32,651 10.8%
    PBIT margin 8.7% 10.5%   14.6% 9.6%  
    * Excluding others & inter-segment adjustments
What to expect?
The management considers the performance during the quarter as satisfying in the backdrop of the overall industrial atmosphere in the capital goods sector that is prevailing currently. Even for the overall industry, things have not been panning out too well. For Thermax, the domestic order intake came down by 42% YoY in the current quarter. International order intake on the other hand saw a 100% YoY rise. The company believes that for the performance to improve, we will still have to wait for a turnaround for the larger domestic capital goods industry.

At the current price of Rs 1,124, the stock is trading at a multiple of 24.3 times our FY17 earnings estimates for the company. Given its expensive valuations; we maintain a SELL view on the stock.

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