Add Thermax Ltd For Target Rs. 2,428 - Yes Securities
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Decent quarter; margin pressure eases
Our view
Thermax Ltd (TMX)reported a decent set of numbers with a healthy 27% YoY revenue growth at Rs20.5bn led by robust execution across segments such as Energy (up 27%), Environment (up 29%) and Chemicals (up 6%). Order inflows came in at Rs22bn while the order book as of 3QFY23 stands at Rs98.6bn (1.3x TTM revenues), providing revenue visibility for 1?2 years. EBITDA margins expanded by ~90bps YoY owing to easing RM pressures. Management sees strong traction in cement, steel, sugar, chemicals, etc in India while in Europe demand would be driven by waste to energy, biomass, and a shift away from China.
We believe TMX is well placed to capitalize on revival of economic activities in the long run given its 1) strong balance sheet, 2) prudent working capital management, and 3) recent technological tie?ups. The stock is currently trading at 52.9x/40.0x/35.3x FY23E/24E/25E. We tweak our FY23/24/25 estimates downward to account for a) moderation in large order pipeline and b) foray into newer technologies which would not be immediately margin accretive. We roll forward our target multiple to FY25E and upgrade the stock to ADD (previously NEUTRAL) with a revised target price of Rs2,428.
Result Highlights
* Consol sales came in at ~Rs20.5bn (up 27% YoY) (YSLe Rs23.8bn) led by growth across all three segments ? Chemicals (6% YoY growth), Environment (up 29% YoY) and Energy (up 27% YoY)
* Gross margins expanded by ~20bps/350bps YoY/QoQ to 44.1% in 3QFY23 on the back of easing of input prices
* EBITDA grew by 42% YoY at Rs1.6bn (YSLe: Rs1.9bn) with EBITDA margins expanding by ~90bps at 7.9% chiefly owing to better gross margins
* PBT grew by 53% YoY supported by a 45% YoY increase in other income
* PAT came in at Rs1.3bn (Rs795mn in 3QFY22), up 59% YoY
* Order inflow came in at Rs22bn, a 10% YoY decline
* Order book stood at Rs98.6bn, up 33% YoY providing a strong revenue visibility for 1?2 years
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