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Thermax Ltd: De-growth all over - Views on News from Equitymaster
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Thermax Ltd: De-growth all over
Jul 29, 2013

Thermax has announced its first quarter results for 2013-2014 (1QFY14). During 1QFY14, both topline and bottomline declined by 12.3% YoY and 25.2% YoY respectively. Here is our analysis of the results.

Performance summary
  • Net sales declined by 12.3% YoY during 1QFY14. The fall has come in on the back of about 17.2% YoY decline in the energy segment and 1.4% YoY decline in the environmental segment.
  • Operating profits decline by 15.5% YoY during 1QFY14 with margins registering a decline of 40 bps on a YoY basis.
  • Net profits decline 25.2% YoY due to muted performance at the operating level and fall in other income by 56.5% YoY.
  • The standalone order back log of the company stood at Rs 55.3 bn during 1QFY14, up 23.7% YoY. Order inflow during the quarter stood at Rs 21.2 bn. On a consolidated basis, the order book stood at Rs 63.2 bn, up 25.4% YoY. During the quarter, the company received a large order worth Rs 17.0 bn from a leading petrochemical company.

Financial performance: A snapshot
(Rs m) 1QFY13 1QFY14 Change
Income from operations  9,835 8,628 -12.3%
Expenditure 8,871 7,814 -11.9%
Operating profit (EBDITA) 964 814 -15.5%
Operating profit margin (%) 9.8% 9.4%  
Other income 187 81 -56.5%
Interest 37 8 -78.9%
Depreciation 132 142 7.8%
Profit before tax 981 745 -24.1%
Tax 309 243 -21.5%
Profit after tax/(loss) 672 503 -25.2%
Net profit margin (%) 6.8% 5.8%  
No. of shares   119.2  
Basic & Diluted earnings per share (Rs)*   4.2  
P/E ratio (x)*   21.1  
* On a trailing 12-months basis
What has driven performance in 1QFY14?
  • Revenues declined 12.3% YoY during 1QFY14. This was mainly due to a 17.2% YoY decline in revenues from the energy segment. Revenues from the energy segment declined due to execution issues in the project business. However, the product business did well. The domestic business declined by 15% YoY while the exports business was relatively flat. The company won an EPC order worth Rs 17 bn from a leading petrochemical company during the quarter. As a result of this, the company registered largest ever order inflow of Rs 21.2 bn during the quarter.

    Segment-wise performance (Standalone)
      1QFY13 1QFY14 Change
    Energy
    Revenue (Rs m) 7,654 6,339 -17.2%
    % share 75.9% 72.6%  
    PBIT margin 10.7% 11.5%  
    Environment
    Revenue (Rs m) 2,432 2,397 -1.4%
    % share 24.1% 27.4%  
    PBIT margin 10.1% 9.0%  
    Total
    Revenue (Rs m)* 10,086 8,736 -13.4%
    PBIT margin 10.6% 10.8%  
    *Excluding other activities and inter-segment adjustments

  • Operating profits declined 15.5% YoY during the quarter with margins declining by 40 bps on a YoY basis to 9.4%. The decline in margins was primarily due to increase in other expenses which increased 28% YoY. Other expenses increased due to mark to market losses.

  • On the segmental basis, margins from the energy segment increased by 80 bps YoY to 11.5%. However, in the environmental segment margins registered a fall of 110 bps YoY to 9%. Increase in raw material prices hurt margins from the environmental sector.

  • Net profits declined 25.2% YoY during the quarter due to muted performance at the operating level and fall in other income. Other income declined 56.5% YoY due to base effect. In 1QFY13, other income was high as some fixed maturity plan income was realized then. Absence of such income in 1QFY14 led to a fall in other income on YoY basis.
What to expect?
At the current price of Rs 590, the stock is trading at a multiple of 14.7x our estimated FY16 earnings estimates. While the overall ordering environment is muted, one large order worth Rs 17 bn from petrochemical sector helped the company to register order inflow of Rs 21.2 bn during the quarter. Going forward, management does not expect the situation in the power sector to improve. As such, we expect the ordering environment to remain muted. On the other hand, rising competitive intensity means that pricing is going to take a further backseat. Given the expensive valuations and muted ordering environment we maintain our SELL view on the stock.

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