Add Thermax Ltd For Target Rs. 2,760 - Yes Securities
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Healthy quarter; Lack of incremental margin and order inflow triggers; downgrade to reduce
Our view
Thermax Ltd (TMX) reported a strong print in line with expectations of a low-double digit revenue growth and strong margin expansion. While revenue growth was driven by Industrial businesses, margin expanded across the board led by stable rm prices and execution of profitable projects. Order Inflow decline was a dampener where a 19% YoY drop in Industrial Infra segment drove the weakness. Order Pipeline grew in single digits compared to the base quarter with improvement in quality of pipeline orders. Chemicals, FEPL, Green Hydrogen, ZLD and digital remain key investment areas for the company.
Looking Forward
Management expects H2FY24 to see improved order inflows (L1 in Rs3-4bn order) while margin could moderate a bit from Q2FY24 levels. The company is focused on the energy transition theme and is striving to create tech-enabled differentiation in the medium term. This is reflected in building up of employee capabilities in differentiated terms such as digital which has led to jump in employee costs. We believe TMX is well placed to capitalize on revival of private capex given its 1) strong balance sheet, 2) prudent working capital management, and 3) recent technological tie?ups. The stock is currently trading at 54.3x/43.3x FY24E/25E. With the recent runup in the stock price, we downgrade it to REDUCE (NEUTRAL previously) with a revised target price of Rs2,760 valuing the company at 40x FY25E EPS.
Result Highlights
* Consol sales came in at ~Rs23bn (up 11% YoY) (2% below estimates).
* Gross margins expanded by ~380bps YoY to 44.4%. Gross margin has remained stable in the range of 44-45% in the last four quarters.
* EBITDA grew by 46% YoY at ~Rs2.05bn (2% below estimates) with EBITDA margins expanding by ~210bps YoY/QoQ to 8.9%.
* Adj PBT grew by 53% YoY to Rs2.18bn (in line with estimates) supported by a 65% YoY increase in other income.
* Adj PAT grew 44% YoY to Rs1.58bn (11% above estimates) helped by a lower ETR of 27.1%
* Order inflow came in at Rs19.7bn (-2% YoY) and Order Book stood at Rs102.6bn (+8% YoY).
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