Buy Thermax Ltd For Target Rs. 2405 - ICICI Direct
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Strong order inflows cushion weak margins
About the stock: Thermax Ltd (Thermax) offers integrated solutions in the areas of energy and environment – heating, cooling, power, water & waste management, air pollution control and chemicals.
? It operates in three key segments energy (~70.7% of FY22 revenue), environment segment (~20.6%) and chemicals segment (~8.7%)
? Focus to increase product & services share (~50% in FY22) vs. projects
Q1FY23 Results: Thermax reported mixed Q1FY23 results.
* Consolidated revenue at | 1654.5 crore, up 57.2% YoY, on better execution
* EBITDA came in at | 96 crore, up 52.2% YoY, with margins at 5.8% impacted by higher commodity prices and freight cost.
* Adjusted PAT came in at | 58.9 crore, up 39% YoY
* Order inflows for Q1FY23 were strong at | 2310 crore, up ~36% YoY
What should investors do? Strong balance sheet, prudent working capital management, recent technological tie-ups, are expected to support growth.
* We remain long term positive and retain our BUY rating on the stock.
Target Price and Valuation: We value Thermax at | 2405 i.e. 45x on FY24E EPS
Key triggers for future price performance:
* We expect revenue, EBITDA to grow at CAGR of ~29%, 42%, respectively, in FY22-24E amid margins gradually returning to normal levels
* Recent broad based recovery in order inflows, strong order enquiry pipeline across industrial sectors likely to ensure decent order inflows, going forward
* Controlled net working capital (NWC), strong balance sheet
Alternate Stock Idea: We also like Larsen & Toubro in our coverage.
* Focus on asset monetisation to further strengthen the balance sheet and improve return ratios. Strong b/s, controlled working capital and strong cash generation
* BUY with a target price of | 2175
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