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Thermax: Growth takes a beating
May 25, 2009

Performance summary
  • Standalone net sales grow by 1.7% YoY during FY09. Performance led by the environment solutions business where sales increased by 24% YoY. However, sales of the energy business drop by 4% YoY.
  • Operating margins contract by 0.3% YoY during the fiscal on the back of higher costs of goods purchased for trading and higher other expenditure (both as percentage of sales).
  • Standalone net profits grow by 2.3% YoY, helped by a lower effective tax rate. On a consolidated basis, profits decline by around 1% YoY.
  • Board recommends a dividend of Rs 5 per share, a dividend yield of 1.3%.


Standalone financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net Sales 9,090 9,236 1.6% 31,568 32,110 1.7%
Expenditure 7,951 8,150 2.5% 27,946 28,499 2.0%
Operating profit (EBITDA) 1,140 1,086 -4.7% 3,622 3,611 -0.3%
Operating profit margin (%) 12.5% 11.8% 11.5% 11.2%
Other income 256 365 892 921 3.3%
Depreciation 61 100 64.4% 218 321 47.3%
Interest 4 17 273.4% 13 33 157.1%
Profit before tax 1,330 1,335 0.3% 4,283 4,179 -2.4%
Extraordinary income/(expense) 21 14 21 14
Tax 546 405 -25.8% 1,496 1,319 -11.8%
Profit after tax/(loss) 805 943 17.1% 2,808 2,873 2.3%
Net profit margin (%) 8.9% 10.2% 8.9% 8.9%
No. of shares (m) 119.2 119.2
Earnings per share (Rs)* 23.6 24.1
P/E ratio (x)* 15.7
* On a trailing 12-month basis

What has driven performance in FY09?
  • Thermax recorded a 1.7% YoY growth in its net sales during FY09, led by a 24% YoY growth in the environment solutions business. This segment contributed 24% of the total topline during the year, while the ‘energy’ solutions division formed the balance 76%. The energy business witnessed a 4% YoY drop in revenues during the fiscal.

  • During the year, the energy segment witnessed a contraction in PBIT margins as compared to the previous year. Its margins were lesser by 0.9% YoY, while the environment solutions business’ margins expanded by 1.8% YoY. Due to the energy segment’s drag on the margins front, the company’s overall PBIT margins declined to 13.4% in FY09 from 13.7% in FY08.

    Segment wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Energy
    Revenue 7,234 7,632 5.5% 26,207 25,173 -3.9%
    % share 76.8% 79.0% 80.1% 75.6%
    PBIT margin 15.7% 13.9% 14.1% 13.2%
    Environment
    Revenue 2,185 2,023 -7.4% 6,513 8,113 24.6%
    % share 23.2% 21.0% 19.9% 24.4%
    PBIT margin 13.9% 20.3% 12.2% 14.0%
    Total*
    Revenue 9,419 9,654 2.5% 32,720 33,285 1.7%
    PBIT Margin 15.3% 15.3% 13.7% 13.4%
    * Excluding inter-segment adjustments

  • During FY09, Thermax’s operating profits fell by 0.3% YoY and its margins contracted by 0.3% YoY. This was mainly on account of higher employee costs, higher costs of goods purchased for trading and higher other expenditure, all as a percentage of sales. The other expenditure FY09 includes a foreign exchange loss of Rs 895 m, excluding which the operating margins for FY09 have actually improved by 2.5% to a level of 14%.

  • As compared to the decline in operating profits (including the forex losses adjusted in other expenditure), Thermax’s bottomline grew at 2.3%YoY during the year. This growth was helped by a lower effective tax rate, which declined from 34.9% in FY08 to 31.6% in FY09.

What to expect?
At the current price of Rs 378, the stock is trading at a multiple of 15.7 times its trailing twelve months earnings. The company's consolidated order book, after consideration of renegotiated orders, stood at around Rs 31 bn at the end of FY09. This is an increase of 17% over last year's order book. During FY09, the company received numerous orders from areas like captive power plants, utility boilers, municipal sewage treatment, and performance chemicals for the oil sector.

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