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Thermax: Getting better with time

Jul 17, 2002

Thermax Limited posted a net profit of Rs 27 m during the June quarter in the current year, as compared to a net loss of Rs 17 m in the corresponding period last fiscal. Sales during the quarter were up 21% YoY. Quoting the company's release, this is the first time in the last five years that Thermax has posted profits in 1Q, usually considered to be a dull period for its target markets.

(Rs m) 1QFY02 1QFY03 Change
Net Sales 836 1,014 21.2%
Other Income 54 62 14.7%
Expenditure 870 999 14.8%
Operating Profit (EBDIT) -33 15 -
Operating Profit Margin (%) -4.0% 1.5%  
Interest 7 2 -73.6%
Depreciation 30 29 -2.3%
Profit before Tax -17 46 -
Tax 0 4 -
Extraordinary items 0 -15 -
Profit after Tax/(Loss) -17 27 -
Net profit margin (%) -2.0% 2.7%  
No. of Shares 23.3 23.8  
Diluted Earnings per share* -2.8 4.5  
P/E Ratio   31.3  

Thermax's June quarter results seem a continuation of the company's turnaround. The company had posted a loss of Rs 103 m in FY01. FY02 was a better year for the company, where it earned Rs 240 m as net profit. The company would have posted higher profits in 1QFY03 but for Rs 15 m extraordinary ammortisation of VRS.

The company's order book position speaks volumes about the future growth prospects. In June quarter, Thermax order book position saw a 36% growth YoY. The order backlog as on June 30, 2002 stood at Rs 2,060 m, 83% higher than the order backlog in 1QFY02. Based on this, the management expects that sales in FY03 will see a growth of 15-20%.

Cost break-up
(Rs m) 1QFY02 1QFY03 Change
Material costs 475 642 35.0%
Staff costs 137 128 -6.2%
Other expenditure 258 228 -11.3%
Total expenditure 870 999 14.8%

Getting wind of this strength in performance, the company's stock price has zoomed to Rs 142 levels currently. The stock trades at 14x FY02 earnings. However, if we assume that Thermax sees an 18% growth in turnover during FY03 and earns net margins of 5.2% (the same as FY02), then at Rs 142, Thermax trades at 12x its FY03E earnings. Though the net margins assumed for FY03 may be conservative, we believe that for an engineering company 12 P/E is on the higher side.

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