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Steady execution across key segments.…

Consolidated revenue came in at | 1574.5 crore, up 19% YoY, 11.6% QoQ (above our estimate of | 1552.9 crore) aided by better execution across segments. Energy segment revenue (~74% of revenue) grew 11.8% to | 1175.3 crore YoY while it was up 10.3% QoQ. Environment segment revenue grew 51.6% to | 301.8 crore and chemical segment revenue came in at | 119 crore, up 23.6%, YoY. EBITDA came in at | 139.6 crore, up 120% YoY and down 5.4% QoQ, aided by cost control measures and better execution amid higher raw material cost. Consequently, EBITDA margin came in at 8.9% (vs. our estimate of 9.9%). Adjusted PAT came in at | 107.3 crore, up 3.4% QoQ partly aided by higher other income and lower effective tax rate.

Order inflows to pick up aided by industrial capex

For Q4FY21, consolidated order inflows were at | 1497 crore (vs. | 1565 crore in Q3FY21). Consolidated order book as on FY21 was at | 5227 crore, almost flat YoY. Majority orders came in from cement, refinery & petrochemical, chemicals and metals space. Consolidated order inflows comprise energy segment (| 1173 crore) while environment & chemicals segment contributed | 324 crore for Q4FY21. Domestic order inflows contributed 76% to | 1145 crore while export orders were 24% (| 352 crore) for the quarter. We estimate order inflows of | 6289 crore, | 7057 crore for FY22E, FY23E, respectively.

Technology tie-ups, subsidiary turnaround to enhance value…

The company is progressing on technology collaboration for waste to heat energy technology, flexible solar films and hydrogen based fuel cell technology with the aim of green and sustainable solutions in energy and environment segment. These technologies will take at least 18-24 months to commercialise and start manufacturing and are likely to enhance significant business opportunity for Thermax in the long term. Also, Danstoker and Indonesia subsidiaries are focused on reducing cost of production and improving order book to gradually break even.

Valuation & Outlook

Thermax’s execution performance was a reflection of better execution in environment and energy segments. Order inflows are witnessing a recovery in sectors ranging from cement, steel, refinery, chemicals, etc, amid shortterm challenges. Better operating margins are expected with favourable execution mix and cost control measures. Strong balance sheet, prudent working capital management, recent technological tie-up are expected to provide a competitive advantage in the long term. We expect revenue, EBITDA CAGR of 18.8%, 33.4%, respectively, in FY21-23E, amid low base. We revise our target price to | 1685 (earlier | 1310), 42x FY23E EPS and revise our rating from HOLD to BUY.

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