Buy Thermax Ltd For Target Rs.2,825 -LKP Securities Ltd
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Thermax (TMX) witnessed a decent Q1FY24 performance wherein the execution was inline while legacy FGD projects execution continue to weigh on industrial margins. TMX reported revenue/EBITDA/APAT of ?19/1.3/1.1bn Order inflows sustained momentum in Q1FY24 at ?25.7bn driven by multiple boiler orders from the steel & distillery sectors. Strong ordering pipeline commentary from management with good medium-sized projects seen across different sectors. Going ahead, we expect order inflow would continue to stay strong with major project announcements (during recent 12-15 months) by core industries while large orders would likely follow by Q4FY24. In exports, enquiry pipeline remains strong, driven by waste to energy, waste heat recovery, and biomass projects. After plateauing over the past two quarters, TMX’s order book has risen from ?97bn in Q4FY23 to ?105bn. The Q1 order inflow stood at ?25.7bn, with base orders forming 70-75% and growing in double digits.
The chemical segment is anticipated to grow above 20% with management indicating that it would continue to invest in capacities and building up capabilities in adjacency chemicals. Meanwhile, TMX continues to invest in new products such as closed-loop cooling towers (CLCT) technology, heat pumps, solar business under subsidiary FEPL, biomass-to-hydrogen under TOESL and developing adiabatic cooling towers. They are also launching solutions for Zero Liquid Discharge (ZLD) water treatment and have plans to incorporate desalination in their water capabilities. Going forward, TMX stands to benefit from the investment in clean energy, sustainability, decarbonisation, normalisation of the international market and impetus on cleaner air and water. Hence we recommend BUY with a price target of ?2,825 (40x FY25E EPS).
Q1FY24 Result Summary:
TMX’s Q1FY24 revenue grew 17% YoY to ?19.3bn, with the industrial products business up 26% to ?8.4bn, industrial infrastructure up 13% to ?9.2bn, green solutions up ~2x to ?1.1bn and chemicals rising 7% to ?1.6bn. EBITDA grew 38% YoY to ?1.3bn but the margin was muted at 6.8% (+105bps) due to legacy infrastructure orders under execution.
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