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Thermax: Order book concerns magnify
Feb 10, 2012

Thermax has announced its financial results for the quarter ended December 2011. During 3QFY12, the company has reported 2.3% YoY rise in sales and 4.7% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • Net sales rise by 2.3% YoY during quarter ended December 2011. The rise has come in on the back of about 2.8% YoY increase in the environment segment. Revenues from the energy segment were flattish and registered a growth of 0.3% YoY.
  • Operating profits decline by 7.5% YoY during 3QFY12. Margins were down by 110 bps due to raw material pricing pressures.
  • Net profits decline 4.7% YoY due to muted performance at the operating level and increase in interest and depreciation expenses.
  • The consolidated order back log stood at Rs 58.0 bn during 3QFY12. The company recorded an order inflow of Rs 7.4 bn during the quarter.


Standalone performance snapshot
(Rs m) 3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
Income from operations 12,412 12,693 2.3% 31,119 36,172 16.2%
Expenditure 10,948 11,339 3.6% 27,409 32,276 17.8%
Operating profit (EBDITA) 1,464 1,354 -7.5% 3,710 3,896 5.0%
Operating profit margin (%) 11.8% 10.7%   11.9% 10.8%  
Other income 117 157 34.1% 390 512 31.3%
Interest 2 7 242.3% 12 22 78.9%
Depreciation 106 120 13.5% 316 348 10.0%
Profit before tax 1,473 1,384 -6.1% 3,771 4,038 7.1%
Tax 471 429 -8.9% 1,212 1,268 4.6%
Profit after tax/(loss) 1,002 955 -4.7% 2,559 2,771 8.3%
Net profit margin (%) 8.1% 7.5%   8.2% 7.7%  
No. of shares         119.2  
Basic & Diluted earnings per share (Rs)*         23.2  
P/E ratio (x)*         14.0  
* On a trailing 12-months basis

What has driven performance in 3QFY12?
  • Revenues grew 2.3% YoY during 3QFY12. Revenues from the energy segment increased 0.3% YoY while that from the environment segment were marginally up by 2.8% YoY. Slowdown in core industrial sectors like cement, power and steel is hurting the order-pipe line of the company. The order book has declined 11% on a q-o-q basis due to structural issues prevailing in these user industries.

    Segment-wise performance (Standalone)
      3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
    Energy            
    Revenue (Rs m) 9,904 9,931 0.3% 24,773 28,303 14.3%
    % share 77.1% 76.7%   76.4% 76.6%  
    PBIT margin 10.8% 9.5%   10.8% 10.1%  
    Environment            
    Revenue (Rs m) 2,943 3,024 2.8% 7,646 8,640 13.0%
    % share 22.9% 23.3%   23.6% 23.4%  
    PBIT margin 13.6% 13.0%   12.8% 11.9%  
    Total            
    Revenue (Rs m)* 12,847 12,955 0.8% 32,419 36,943 14.0%
    PBIT margin 11.5% 10.3%   11.2% 10.5%  
    *Excluding other activities and inter-segment adjustments

  • The operating margins of the company declined by 110 bps to 10.7% in 3QFY12 due to increase in raw material expenses as percentage of sales. Execution of low margin EPC orders also impacted profitability.

  • Net profits declined 4.7% YoY during the quarter due to muted performance at the operating level coupled with rise in interest and depreciation expenses.

What to expect?
At the current price of Rs 475, the stock is trading at a multiple of 10.9 times our estimated FY14 earnings. Considering the overall slowdown in user industries, management expects the ordering activity to remain muted/sluggish in next year. Subsequently, revenues are expected to remain flat/decline marginally in the next fiscal. While orders in steel and oil & gas sector may register an improvement in the second half of next fiscal, power sector would continue to remain a concern. Based on the existing concerns over revenue visibility, we maintain our hold view on the stock.

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