Accumulate Thermax Ltd For Target Rs.2,913 - Geojit Financial Services
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Execution to pick-up in H2FY24...
In H1FY24, TMX reported a revenue growth of 13.6% YoY to Rs. 4,235cr, aided by strong execution in the Industrial product segment (22% YoY), Green solutions (23% YoY) and Industrial infra (13% YoY). The Chemical segment witnessed a muted growth. The management expects execution to pick up in H2FY24, aided by strong orders and TMX’s continued investments in solar and in biomass to hydrogen businesses. However, we largely maintain our FY24/FY25 revenue estimate.
Stabilised commodity costs aid margins...
Across the business segments, margins witnessed an improvement largely aided by stabilisation in commodity costs and a price hike in the industrial product segment, especially in the boiler business. The EBIT margins of the industrial segment, industrial, Infra, Green solutions and Chemical businesses improved by 215bps, 101bps, 435bps, 503bps YoY, respectively. The gross and EBITDA margins during the quarter expanded by 377bps YoY and 211bps YoY to 44.4/7.4%, respectively. The management highlighted that half of the operating margin expansion to sustain as the execution of one large project is almost complete. An increase in operational activity aided adj. PAT to grew by 45% YoY to Rs. 451cr in FY23.
Strong order book provides visibility...
In H1FY24, total order inflow grew by 5% YoY to Rs4,540cr, largely on account of strong inflows in green solutions by 78% YoY, followed by industrial products by 8% YoY, while industrial infra and chemical segments registered muted growth. The order book grew by 8% YoY to Rs10,264cr, which is 1.2x TTM revenue, providing visibility for the coming quarters. TMX indicated that there is a good demand from international waste-to-energy and biomass projects and expects a pick-up in order inflows in H2FY24.
Valuations
We expect execution to pick up in the coming quarters due to a healthy order book and margins to stabilise in the coming quarters due to the softening of commodity prices. We assign an Accumulate rating with a TP of Rs2,913 and roll forward our valuation based on FY26 EPS at a P/E of 38x.
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