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Thermax Ltd: Hurt by capex downturn - Views on News from Equitymaster
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Thermax Ltd: Hurt by capex downturn
Aug 2, 2012

Thermax has announced its first quarter results for 2012-2013 (1QFY13). During 1QFY13, both topline and bottomline declined by 5.8% YoY and 15.9% YoY respectively. Here is our analysis of the results.

Performance summary
  • Net sales declined by 5.8% YoY during quarter ended June 2012. The fall has come in on the back of about 4.5% YoY decline in the energy segment and 8.3% YoY decline in the environmental segment.
  • Operating profits decline by 15.1% YoY during 1QFY13. In line with that, operating margins decline by 110 bps to 9.8% in 1QFY13.
  • Net profits decline 15.9% YoY due to muted performance at the operating level and rise in interest expenses.
  • The order back log of the company stood at Rs 44.7 bn during 1QFY13.Out of the total backlog, Rs 37.0 bn worth of orders are from the domestic markets while the balance Rs 7.7 bn is from exports. Order intake for the current quarter stood at Rs 12.5 bn.

Standalone performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Income from operations 10,443 9,835 -5.8%
Expenditure 9,307 8,871 -4.7%
Operating profit (EBDITA) 1,135 964 -15.1%
Operating profit margin (%) 10.9% 9.8%  
Other income 149 187 25.6%
Interest 4 37 892.4%
Depreciation 111 132 19.1%
Profit before tax 1,170 981 -16.1%
Tax 371 309 -16.6%
Profit after tax/(loss) 799 672 -15.9%
Net profit margin (%) 7.6% 6.8%  
No. of shares   119.2  
Basic & Diluted earnings per share (Rs)*   5.6  
P/E ratio (x)*   14.7  
* On a trailing 12-months basis

What has driven performance in 1QFY13?
  • Revenues declined 5.8% YoY during 1QFY13. This was mainly due to a 4.5% YoY decline in revenues from the energy segment. Revenues from the energy segment declined due to lower carry forward orders. However, the order intake situation is gradually improving. The order inflow in the current quarter stood at Rs 12.5 bn compared to Rs 8 bn in the previous quarter. The company won two major orders during the quarter, one from the Kalinganagar steel plant worth Rs 2.8 bn and second from Reliance Industries worth Rs 1.8bn.

    Segment-wise performance (Standalone)
      1QFY12 1QFY13 Change
    Revenue (Rs m) 8,016 7,654 -4.5%
    % share 75.1% 75.9%  
    PBIT margin 9.9% 10.7%  
    Revenue (Rs m) 2,653 2,432 -8.3%
    % share 24.9% 24.1%  
    PBIT margin 12.2% 10.1%  
    Revenue (Rs m)* 10,670 10,086 -5.5%
    PBIT margin 10.5% 10.6%  
    *Excluding other activities and inter-segment adjustments

  • The operating margins of the company declined by 110 bps to 9.8% in 1QFY13 due to increase in staff cost and other expenditure as percentage of sales. The staff cost increased from 8.7% in 1QFY12 to 9.2% in 1QFY13 while the other expenditure increased from 10.7% in 1QFY12 to 14.2% in the current quarter.

  • Net profits declined 15.9% YoY during the quarter due to muted performance at the operating level and increase in interest expenses. Apart from this, a mark to market loss of Rs 124 m in the current quarter also impacted the profitability.

What to expect?
At the current price of Rs 487, the stock is trading at a multiple of 14.7 times its trailing twelve month earnings. Considering the overall slowdown in captive power segment the order pipeline of the company is under significant pressure. However, the situation is showing some signs of improvement. It may be noted that the company has strong presence in the captive power (as EPC contractor) segment especially relating to cement and steel sector. While the capacity utilization for cement in South is still low, for some regions in the North it has reached about 90%. Thus, some inquiries are likely to emanate from the northern region. However, the situation in steel sector is not showing any signs of improvement as no major investments are expected in the near future. Nonetheless, management expects some order finalizations in other sectors like food, chemicals, sugar and paper.

As far as the environmental business is concerned, the outlook is not that robust as no significant investments are expected on either the water treatment side or on the air pollution side. With respect to margins, management is confident of managing the same within a tight band of 100-150 bps with an equal focus on maintaining the market share. Thus, in light of these factors we maintain our hold view on the stock.

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