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Thermax Ltd: Order inflow and margins imrpove - Views on News from Equitymaster
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Thermax Ltd: Order inflow and margins imrpove
May 23, 2013

Thermax has announced its fourth quarter and FY13 results. During 4QFY13, both top line and bottom line declined by 13% YoY and 11.2% YoY respectively. Here is our analysis of the results.

Performance summary
  • Net sales declined by 13% YoY during 4QFY12. Energy segment's sales declined 13.7% YoY; while Environment segment's sales decreased 16.9% YoY.
  • Operating profits declined by 9.7% YoY during 4QFY13. However, margins improved by 0.4% from 11% to 11.4%. The improvement in margin was due to decline in material cost as a percentage of sales. The company added that its efforts to improve margin in the form of value engineering has helped cut down the material cost and other expenses.
  • Profit after tax declined 11.2% YoY due to decline in operating profit and other income.
  • The consolidated order back log of the company stood at Rs 48.8 bn at the end of 4QFY13. The consolidated order intake stood at Rs 13.7 bn for the current quarter. While the standalone order book stands at Rs 43.6 bn, out of which Energy contributes around 32.8 bn; while Environment segment order book stands at Rs 10.8 bn.
  • The company proposed a dividend of Rs 7.0 per share for FY13.

Standalone performance snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Income from operations  16,868 14,682 -13.0% 53,041 46,909 -11.6%
Expenditure 15,015 13,009 -13.4% 47,202 41,837 -11.4%
Operating profit (EBDITA) 1,853 1,672 -9.7% 5,839 5,071 -13.1%
Operating profit margin (%) 11.0% 11.4%   11.0% 10.8%  
Other income 272 244 -10.2% 705 730 3.6%
Interest 34 5 -86.1% 66 96 47.3%
Depreciation 121 145 20.3% 470 549 16.8%
Profit before tax 1,971 1,767 -10.3% 6,009 5,156 -14.2%
Tax 673 614 -8.8% 1,940 1,657 -14.6%
Profit after tax/(loss) 1,298 1,153 -11.2% 4,069 3,500 -14.0%
Net profit margin (%) 7.7% 7.9%   7.7% 7.5%  
No. of shares         119.2  
Basic & Diluted earnings per share (Rs)*         29.4  
P/E ratio (x)*         20.0  
* On a trailing 12-months basis

What has driven performance in 4QFY13 and FY13?

  • Sales for 4QFY13 declined 13% YoY due to poor show in both Energy and Environment segment. Sales for FY13 declined 11.6% YoY as the company started the year with a lower order book. There was also slow pace of execution in few of the Energy segment orders.

  • Operating profit declined 9.7% YoY and 13.1% YoY during 4QFY13 and FY13 respectively. However, operating margin improved 0.4% to 11.4% YoY for 4QFY13; while margin for the full year declined a bit by 0.2% to 10.8% YoY.

  • EBIT margin in Energy segment improved by 0.6% YoY; while Environment segment witnessed sharp drop in margin from 13.8% to 11.8% YoY. For FY13, both Energy and Environment segment witnessed drop in EBIT margin.

  • Net profit declined 11.2% YoY during the quarter due to muted performance at the operating level and fall in other income. For FY13 as a whole, profit declined by 14% YoY.

  • Consolidated Order inflow for 4QFY13 has been Rs 13.7 bn (up 49% YoY); while standalone order inflow increased substantially by 43% YoY to Rs 11.6 bn. The company witnessed good traction in international market.

  • Order backlog for FY13 stands at Rs 48. 8 bn (1% up YoY); while order backlog for standalone increased by 3% YoY to Rs 43.6 bn. In the current order book, Power and Ferrous metals have about 20% share each. Food and Chemicals share is 10%, while the share of Cement has decreased to 7%.

  • Thermax's subsidiary Danstoker has been profitable during the quarter and the company expects the latter's profitability to improve going forward.

    Segment-wise performance (Standalone)
      4QFY12 4QFY13 Change FY12 FY13 Change
    Energy
    Revenue (Rs m) 13,206 11,391 -13.7% 28,303 24,991 -11.7%
    % share  75.8% 76.5%   76.6% 76.2%  
    PBIT margin 9.9% 10.5%   11.0% 10.4%  
    Environment 
    Revenue (Rs m) 4,211 3,500 -16.9% 8,640 7,810 -9.6%
    % share  24.2% 23.5%   23.4% 23.8%  
    PBIT margin 13.8% 11.8%   11.7% 9.9%  
    Total
    Revenue (Rs m)* 17,417 14,891 -14.5% 36,943 32,801 -11.2%
    PBIT margin 10.9% 10.8%   11.2% 10.3%  
    *Excluding other activities and inter-segment adjustments

What to expect?
Thermax's TBW (Thermax Babcock Wilcox) super critical boiler plant is almost ready but they do not have any orders in hand for the same. Also, the company is not optimistic of bagging any super critical boiler order in near future. According to the company, there will just be 2-3 tenders floating in the market, that too, amongst stiff competition.

On the margin front, the company may struggle to maintain the same margins if its topline does not improve because of stringent market conditions.

At the current price of Rs 589, the stock is trading at a multiple of 20 times its trailing twelve month earnings. Hence, considering the uncertain future outlook on its boiler venture and given its expensive valuations; we maintain our SELL view on the stock.

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