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Gradual margin recovery underway

Our view

Thermax Ltd (TMX) reported a decent set of numbers with a healthy 16% YoY revenue growth at Rs23.1bn led by healthy execution across segments such as Industrial Products (up 12% YoY), Industrial Infra (up 18% YoY), Green Solutions (up 24% YoY) and Chemicals (up 27% YoY). Order inflows came in at Rs22.5bn (down 34% YoY on a high base) while the order book as of 4QFY23 stands at Rs97.5bn (1.2x TTM revenues), providing revenue visibility for 1-2 years. EBITDA margins expanded by ~190bps YoY owing to easing RM pressures. Though the ordering pipeline has plateaued, management sees decent traction in cement, steel, chemicals, etc in India while in Europe demand would be driven by waste to energy, biomass, waste heat recovery, etc

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 43.8x/35.2x FY24E/25E. We maintain our ADD rating with a revised target price of Rs2,591 valuing the company at 40x FY25E EPS.

Result Highlights

* Consol sales came in at ~Rs23.1bn (up 16% YoY) (YSLe Rs24bn) led by growth across all segments – Industrial products (12% YoY growth), Industrial infra (up 18% YoY), Green solutions (up 24% YoY) and Chemicals (27% YoY growth). (NB: segmental reporting has changed 4QFY23 onwards)

* Gross margins expanded by ~700bps/70bps YoY/QoQ to 44.8% in 4QFY23 on the back of easing of input prices

* EBITDA grew by 48% YoY at Rs2bn (YSLe: Rs2bn) with EBITDA margins expanding by ~190bps YoY at 8.7% chiefly owing to better gross margins and operating leverage

* PBT grew by 63% YoY supported by a 61% YoY increase in other income and robust operating performance

* PAT came in at Rs1.7bn (Rs1bn in 4QFY22), up 69% YoY

* Order inflow came in at Rs22.5bn, a 34% YoY decline

* Order book stood at Rs97.5bn, up 11% YoY providing a strong revenue visibility for 1-2 years

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