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Mixed quarter; RM inflation dents margins

Our view

Thermax Ltd (TMX) reported a mixed set of numbers, with a strong 27% YoY revenue growth at Rs19.bn (highest‐ever) led by robust execution across segments such as Energy (up 23%), Environment (up 53%) and Chemicals (up 10%). Order inflows came in at an all‐time high of Rs34bn while the order book as of 4QFY22 stands at Rs88bn (1.4x TTM revenues), providing revenue visibility for 1‐2 years. EBITDA Margins remained under pressure owing to elevated commodity prices, high freight costs, supply chain constraints and low capacity utilization atthe Dahejfacility. Management sees strong traction in cement, steel, refinery, petchem and upcoming sectors such as Waste to Energy, Bioethanol, Biomass, Coal Gasification, etc.

We believe TMX is well placed to capitalize on reviving 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 47.4x/38.4x FY23E/24E. We maintain our REDUCE rating on stock with a TP of Rs2,112.

Result Highlights

Consol sales came in at ~Rs19.9bn (up 27% YoY) (YSLe Rs18.2bn) led by growth across three segments‐  Chemical Segment (10% YoY growth), Environment segment (up, 53% YoY) and Energy (up 23% YoY).

Gross margins declined by ~1000bps YoY to 37.8% in 4QFY22 owing to steep rise in raw material expense.

EBITDA declined by 3.2% YoY at Rs1.3bn (YSLe: Rs1.5bn) with EBITDA margins contracting by 208bps at 6.8% vs 8.9% in 4QFY21 owing to rise in employee cost and lower gross margins.

PBT declined by 6.4% led by disappointing operating performance.

Adj.PAT came in at Rs1.02bn (Rs1.1bn in 4QFY21), down 5% YoY.

Order inflow came in at highest level to Rs33.96bn showing signs of capex revival.

Order book stood at Rs88.1bn, up 68.6% YoY providing a strong revenue visibility for 1‐2 years.

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