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Decent growth, margins impacted amid challenges…

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 three in key segments energy (~76% of FY21 revenue), environment segment (~17%) and chemicals segment (~9%)

* Focus to increase the product & services share (~50% in FY21) vs. projects

Q1FY22 Results: Thermax reported reasonable Q1FY22 results amid disruptions.

* Consolidated revenue was up 58.3% YoY, amid low base

* EBITDA came in at | 63 crore (vs. EBITDA loss of | 11.4 crore in Q1FY21) impacted by higher commodity prices and pandemic disruptions

* PAT came in at | 42.4 crore (vs. net loss of | 15.3 crore in Q1FY21)

* Order inflows for Q1FY22 came in at | 1696 crore, up ~179% 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 | 1680 i.e. 42x on FY23E EPS

Key triggers for future price performance:

* We expect revenue, EBITDA to grow at CAGR of ~18.8%, 33.1%, respectively, over FY21-23E amid margin improvement and low base

* Recent broad based recovery in order inflows, strong order enquiry pipeline across industrial sectors likely to ensure decent order inflows for FY22E

* Controlled net working capital (NWC), strong balance sheet

Alternate Stock Idea:

Besides Thermax, in our coverage we also like Elgi.

* Among the leaders in domestic compressor market with strong b/s and return ratios, gaining traction in international markets to drive growth

* BUY with a target price of | 260

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