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Thermax: Topline worries

Aug 4, 2003

Thermax Ltd. has posted a net profit of Rs 71 m for the quarter ended June 30, 2003 (up 165% YoY). However, the revenue growth engine seemed to have hit a speed breaker. The net sales dipped by 19% YoY, but due to decrease in the expenditure, the company managed to post an increase of 13% in operating income. The operating margins also improved marginally.

(Rs m)1QFY031QFY04Change
Net Sales1,014825-18.6%
Other Income628841.3%
Expenditure997806-19.2%
Operating Profit (EBDIT)171912.9%
Operating Profit Margin (%)1.7%2.3%
Interest21-50.0%
Depreciation2923-22.4%
Profit before Tax488373.5%
Tax412195.0%
Extraordinary items-150
Profit after Tax/(Loss)2971146.6%
Net profit margin (%)2.9%8.7%
No. of Shares23.823.8
Diluted Earnings per share*4.912.0
P/E Ratio20.6
*(annualised)

There is a 46% increase in order booking for the quarter as compared to the corresponding figure last year. As a result the order backlog of the company stands at Rs 2.3 bn (around 0.5x FY03 revenues)

The material cost came down drastically as compared to same quarter last year and overall decrease of around 19% helped company to improve its operating margins. The net profit got a further boost because of increase in other income (up 41%), decrease in interest cost (down 50%) and depreciation (down 22%).

Cost Break-up
(Rs m)1QFY031QFY04Change
Material costs642456-29.0%
Staff costs1281409.1%
Other expenditure227210-7.4%
Total expenditure997806-19.2%

Lets have a look at the segmental break-up of revenues.

The huge dip of around 24% in revenues from energy business remains the cause of worry. The trend may get carried to the next quarter as well, because this segment has failed to see any significant order flow. The PBIT margin of energy segment has improved marginally due to reduction in material and other costs. The revenues of environmental business came down by around 6% but what is more worrisome is the losses posted at PBIT level by this segment as compared to decent profits in the same quarter last year. The major contributor to the huge increase in the net profits is unallocable income. Company has not given any details about the break-up of unallocable income.

(Rs m)1QFY031QFY04Change
Energy 750 572 -23.7%
Environment 303 284 -6.3%
Gross total revenue 1,053 856 -18.7%
Segment PBIT
Energy2927-5.5%
PBIT margin3.9%4.8%
Environment26-1-
PBIT margin8.7%-0.4%
Unallocable income-2258-

Though company expects most of its businesses to grow by 15% in FY04 but the environmental business profitability seems to be in doldrums. Moreover, the company has not been able to receive any major contract for cogen division (handling the power business of the company) so not much can be expected from that.

The company will see a new chairperson at the helm soon. This clears the air on succession issue for Thermax. The company reported strong FY03 numbers doubling net profits to Rs 482 m, backed by 16% topline growth. Thermax has already announced Rs 12 per share as dividend and also a bonus issue of 6% preference shares, in the same vein as HLL.

At the current price level of Rs 248, the stock trades at the P/E multiple of 20.6x annualised 1QFY04 earnings. Though the first quarter has raised some concerns, for engineering companies it cannot be taken as a benchmark of future performance.

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