Neutral Thermax Ltd For Target Rs. 2,374 - Yes Securities
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Mixed quarter; margins hit by RM inflation
Our view
Thermax Ltd (TMX) 2QFY23 result was a mixed bag with a strong 41% YoY revenue growth at Rs20.7bn led by robust execution across segments such as Energy (up 39%), Environment (up 44%) and Chemicals (up 48%). Order inflows came in at Rs20.1bn while the order book as of 2QFY23 stands at Rs94.8bn (1.3x TTM revenues), providing revenue visibility for 1?2 years. EBITDA margins remained under pressure owing to high input costs in the Energy and Chemical segments. Management sees strong traction in oil & gas, refinery, petrochemicals, steel, etc in India while in Europe demand would be driven by waste to energy, biomass, and a shift away from Russia.
We believe TMX is well placed to capitalize on revival of economic activities in the long run given its 1) strong balance sheet, 2) prudent working capital management, 3) recent technological tie?ups and 4) continuity in order inflow with strong tender pipeline. The stock is currently trading at 46.7x/38.4x/31.4x FY23E/24E/25E. We maintain our NEUTRAL rating with a revised TP of Rs2,374 valuing it at 40x FY24E EPS.
Result Highlights
* Consol sales came in at ~Rs20.7bn (up 41% YoY) (YSLe Rs17.6bn) led by growth across all three segments ? Chemicals (48% YoY growth), Environment (up 44% YoY) and Energy (up 39% YoY)
* Gross margins declined by ~440bps YoY to 40.6% in 2QFY23 owing to steep rise in raw material expense
* EBITDA grew by 28% YoY at Rs1.4bn (YSLe: Rs1.2bn) with EBITDA margins contracting by ~70bps at 6.8% vs 7.5% in 2QFY22 owing to negative operating leverage and lower gross margins
* PBT grew by 25% YoY despite a 58% YoY increase in interest expense
* Adj.PAT came in at Rs1.1bn (Rs879mn in 2QFY22), up 24% YoY
* Order inflow came in at Rs20.1bn, a growth of 9% YoY
* Order book stood at Rs94.8bn, up 46% YoY providing a strong revenue visibility for 1?2 years
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