Published on 6/12/2019 11:40:59 AM | Source: Yes Securities Ltd

Reduce Thermax Ltd For The Target Rs.1,030 - Yes Securities

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Bleak execution visibility with weak order book

Upbeat execution but order book remains weak

Revenue grew 12% yoy, beating our estimates by 8% led by strong domestic execution (60% of sales, 55‐60% yoy); while overseas sales grew 9%. Revenues were led by good execution in the Energy (82% of sales, +17% yoy) & Chemical (7% of sales, +6% yoy) segments while Environment segment dipped 11% yoy. Order inflows (Rs 17.3bn) increased 28% yoy due to large FGD order of Rs4.7bn. Order book (Rs52.5bn, ‐18% yoy) is 0.8x TTM sales providing limited revenue visibility for FY20‐21. EBITDA margin came in line with estimates at 8%, +41bps yoy due to lower employee cost (-66bps yoy). Other income (18% of PBT) declined 38% yoy on lower treasury income. PBT beat our estimates by 4%, however PAT (-66% yoy) was substantially below our estimates on higher than expected tax rate (deferred tax asset reversal of Rs700mn).

Overall macro outlook is challenging & hence management remained skeptical over near-term capex cycle recovery. Large orders from steel, power and mining continue to remain elusive, while small/mid-sized orders in emission control, FMCG, hydrocarbon & chemicals to drive inflows. Management expects order inflow to remain flat yoy in FY20. Traction from international markets also remain weak in the absence of large projects. Even after building in efficiency gains during execution, getting back to double digit margins seems difficult due to high competitive intensity for new orders and weak domestic demand. We cut FY21 EPS by 10% to factor the feeble revenue visibility & assign TP of 1,030 at 28x (historical average of 25x) FY21 EPS with REDUCE rating. In our view, risk-reward looks unfavorable owing to flagging order book, near term challenges & expensive valuations.


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