Published on 18/09/2019 10:26:38 AM | Source: Prabhudas Lilladher Ltd

Accumulate Thermax Ltd For The Target Rs.1,147 - Prabhudas Lilladher

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PAT miss on lower EBITDA margin and fall in other income

Thermax Ltd (TMX) reported robust revenue growth of 35% YoY, however PAT missed our expectations due to lower than expected EBIDTA margins and decrease in other income. Order inflow during 1QFY20 was a major disappointment with -27% YoY fall which was due to postponement of orders (due to elections) and weak investment sentiments in both domestic and international markets. Capacity utilization in most sectors is below optimal level, most companies are deferring capex plans. Going forward, management expects tendering to pick-up from 2Q/3Q FY20 onwards, mainly short cycle orders. Sectors which are expected to witness ordering are Cement, Steel, Water recycling, Chemical, Textile, Agro Pharma etc. The company received 1 FGD order in 1QFY20 and is L1 in couple of large orders which are expected to be received in FY20. On the international front, TMX sounded cautious due to weak investment sentiments and financial crunch. We expect TMX to report sales/PAT CAGR of 7%/15% over next two years (FY19-21E). The stock is currently trading at 32.6x/28.3x FY20E/21E. We maintain our Accumulate rating on the stock with TP of Rs1147 (30x FY21E).

* PAT miss due to lower than expected EBIDTA margins: TMX’s consolidated revenue was up 35% YoY at Rs13.9 bn (PLe.Rs12 bn), majorly led by 45% YoY growth in Energy segment. Environment/Chemicals segment were flat YoY. EBITDA margin expanded by 40bps YoY to 7.1% due to 420bps YoY drop in gross margin. On the segments, Energy segment EBIT margin expanded 90bps YoY to 6% while Environment/Chemicals segment witness dip of 100bps/50bps YoY at 2.1%/11.7% respectively. Absolute EBITDA was up 43% YoY at Rs991 mn to due to strong revenue growth. Depreciation/Interest was up by 25%/32% YoY. Other Income decreased by 30.5% YoY to Rs216 mn due to lower treasury gains. Tax rate for the quarter was lower at 30.3% compared to 36% in 1QFY19. Hence, PAT was up 29% YoY to Rs0.6 bn (PLe Rs0.7 bn).

* Weak order inflow in 1QFY20: Order inflow during 1QFY20 fell 27% YoY at Rs12.1 bn mainly on account of postponement of orders from customers. Domestic order intake was high and international was marginally lower. Management is expecting higher short term orders in 2Q onwards. Energy segment order inflow fell 41% YoY at Rs8.2 bn due to delay in conclusion of major orders. Environment segment order inflow was up 81% YoY at Rs2.9 bn driven by major orders from Air Pollution Control. Order inflow from Chemical segment was flat YoY at Rs1.1 bn and is expected to improve from next quarter. Order backlog at the end of 1QFY20 stood at Rs52.5 bn, down 18% YoY mainly due to slowdown in investment sentiments both in domestic and international markets.


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