IGI Logo

Muted revenue visibility...

Thermax Ltd (TMX) is a leading energy and environment solutions provider. They offer integrated innovative solutions in the areas of heating, cooling, power, water & waste management, air pollution control and chemicals.

* Q4FY21 revenue grew by 19% YoY at Rs.1,411cr led by strong execution in environment (52% YoY) & chemical segment (24% YoY).

* EBITDA margin expanded by 406bps YoY to 8.9% due to favourable sales mix, cost rationalisation & operating leverage.

* Order inflow grew by 57% YoY in Q4FY21 largely due to low base and fresh orders received in Energy segment, while order book registered a flat growth in FY21 at Rs5,227cr (1.1x FY21 revenue).

* PAT increased by 175% YoY due to positive surprise on margins and rise in other income, partially offset by higher tax expenses.

* Weak capex cycle, muted revenue visibility and current premium valuation, implying limited room for further upside in the near term. Therefore, we revise our rating to Reduce from Hold and value TMX at a P/E of 35x on FY23E EPS with a TP of Rs1,299.

Pick-up in execution...

TMX Q4FY21 consolidated revenue grew by 19% YoY to Rs1,575cr aided by better execution in Environment segment (52% YoY), Chemical business (24% YoY) and Energy segment (12% YoY). In FY21, top-line registered a de-growth of 16% YoY to Rs4,791cr due to the impact of subdued order inflows and lack of private capex, while Chemical segment continued its strong performance with 63%YoY growth owing to strong demand from USA and Europe market. The management sees good visibility in short orders from sectors like steel, cement, chemical, pharma and food processing in coming quarters. The Q1FY22 execution is likely to have some impact due to the second Covid wave.

Order book provides limited visibility...

Order inflow grew by 57% YoY to Rs1,497cr largely due to low base of Q4FY20 and 71% YoY increase in energy segment orders, while environment segment grew by 22% YoY and chemical segment orders increased by 21% YoY. The domestic order inflow grew by 91% YoY to Rs1,132cr supported by small ticket orders. The management says, the order booking across segments have exceeded pre-COVID levels. However, the outlook seems clouded due to the second COVID wave. FY21 order book is at Rs 5227cr, registering a flat growth(1.1x FY21 revenue) and provides limited revenue visibility. The slowdown in industrial activity have an overall impact on orders.

Margins improved...

The EBITDA margin improved by 406bps to 8.9% on account of better sales mix and operating leverage. Rise in commodity prices could have some impact on margin and profitability in the near term. The PAT grew by 175% YoY to Rs107cr aided by weak base of Q4FY20.

Valuations

The underperformance of overseas subsidiaries and rise in commodity prices could have some impact on profitability, while tepid order book and current premium valuation, implies limited room for further upside. We therefore, downgrade our rating to Reduce from Hold and value TMX at a P/E of 35x on FY23E EPS with a TP of Rs1,299.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.geojit.com
SEBI Registration number is INH200000345

Above views are of the author and not of the website kindly read disclaimer