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Thermax Ltd: A disappointing quarter

Aug 5, 2014 | Updated on Oct 30, 2019

Thermax has announced its first quarter (1QFY15) results. During 1QFY15, both topline and bottomline declined by 2.4% YoY and 17.6% YoY respectively. Here is our analysis of the results.

Performance summary
  • Net sales declined by 2.4% YoY during 1QFY15. The energy segment managed to see a marginal increase in revenues of 1.7% YoY; while environmental segment revenues decreased 10.4% YoY.
  • Operating profits declined by 29.6% YoY during 1QFY15. Margins thus fell by 2.3% from 8.2% to 5.9%. The fall in margin was due to an increase in material cost as a percentage of sales, which increased from 56.8% of sales in 1QFY14 to 59.6% in the quarter gone by. Staff costs too added to the margin deterioration with a 0.7% increase over the previous year's quarter.
  • Profit after tax declined 17.6% YoY due to decline in operating profit, and rise in depreciation & interest costs.
  • The consolidated order back log of the company stood at Rs 59.48 bn at the end of 1QFY15.

Standalone performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Income from operations 8,510 8,307 -2.4%
Expenditure 7,814 7,817 0.0%
Operating profit (EBDITA) 696 490 -29.6%
Operating profit margin (%) 8.2% 5.9%  
Other income 199 278 39.4%
Interest    8 30 275.5%
Depreciation 142 150 5.0%
Profit before tax 745 589 -21.0%
Tax 243 175 -27.9%
Profit after tax/(loss) 503 414 -17.6%
Net profit margin (%) 5.9% 5.0%  
No. of shares   119.15  
Basic & Diluted earnings per share (Rs)*   20.5  
P/E ratio (x)*   41.7  
* On a trailing 12-months basis

What has driven performance in 1QFY15?
  • Sales for 1QFY15 declined 2.4% YoY due to almost flat revenues in the Energy segment coupled with a poor show in the Environment segment. While the former saw a marginal 1.7% increase in sales, the latter saw its revenues fall by 10.4% during the quarter.

  • Operating profit declined 29.6% YoY during 1QFY15. The large decline in profit amidst a 2.4% decline in the topline meant that operating margin fell sharply from 8.2% in the previous year's quarter to 5.9% in 1QFY15.

  • EBIT margins in both the Energy segment and the Environment segments fell sharply; by 5% YoY and 4.4% YoY respectively.

  • Much higher other income along with a lower effective tax rate during the quarter meant that as compared to the fall in operating profit, net profit declined at a slower pace of 17.6% YoY during the quarter.

  • Consolidated Order inflow for 1QFY15 has been Rs 8.12 bn (down 68% YoY); while standalone order inflow too witnessed a sharp fall of similar proportions.

  • Order backlog for 1QFY15 stands at Rs 59.48 bn (down 6% YoY); while order backlog for standalone operations also decreased by 6% YoY to Rs 52.06 bn. Domestic orders made up 81% of the consolidated order backlog while international operations constituted 19% during the quarter.

    Segment-wise performance (Standalone)
      1QFY14 1QFY15 Change
    Revenue (Rs m) 6,339 6,446 1.7%
    % share  72.6% 75.0%  
    PBIT margin 11.5% 6.5%  
    Revenue (Rs m) 2,397  2,148 -10.4%
    % share  27.4% 25.0%  
    PBIT margin 9.0% 4.6%  
    Revenue (Rs m)* 8,736 8,594 -1.6%
    PBIT margin 10.8% 6.1%  
    *Excluding other activities and inter-segment adjustments
What to expect?
The management has indicated its belief that while this has indeed been a disappointing quarter, it should not be taken as a trend or an indicator of things to come, and should in fact turn out to be an isolated incident.

The drop in profit has mainly been due to two reasons. One, the water business continues to be negative, and has in fact seen a substantial loss in current quarter. This is primarily because of some cost overruns. The company expects this to continue for a couple of more quarters and it should turnaround by the fourth quarter of the current fiscal. Second, for energy business also, the company had expected certain orders having a better margin profile to be executed in the current quarter, but those revenues could not be recognized. However the cost booking had to be done as the company did take certain things for production on those orders. Thus cost booking was done on these despite revenues not being booked thus impacting overall margins during the quarter. Those are the two predominant reasons for the dip in profitability during the quarter.

At the current price of Rs 857, the stock is trading at a multiple of 41.7 times its trailing twelve month earnings. Given its expensive valuations; we maintain a SELL view on the stock.

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Jun 17, 2021 (Close)


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