Neutral Thermax Ltd For Target Rs. 2,112 - Yes Securities
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Mixed quarter; Margins hit by RM inflation
Our view
Thermax Ltd (TMX) 1QFY23 result was a mixed bag with a strong 57% YoY revenue growth at Rs19.bn led by robust execution across segments such as Energy (up 61%), Environment (up 62%) and Chemicals (up 22%). Order inflows came in at Rs23.1bn while the order book as of 1QFY23 stands at Rs95.5bn (1.4x TTM revenues), providing revenue visibility for 1?2 years. EBITDA Margins remained under pressure owing to elevated commodity prices (steel, aluminium, nickel, styrene, etc.). Management sees strong traction in cement, refinery, petchem, power and upcoming sectors such as Waste to Energy, Bioethanol, Biomass, etc.
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 46.9x/38.1x FY23E/24E. We maintain our TP of Rs2,112 however we now assign it NEUTRAL (previously REDUCE) due to a change in our rating methodology.
Result Highlights
* Consol sales came in at ~Rs16.5bn (up 57% YoY) (YSLe Rs14.6bn) led by growth across three segments? Chemical Segment (22% YoY growth), Environment segment (up 62% YoY) and Energy (up 61% YoY).
* Gross margins declined by ~800bps YoY to 41.3% in 1QFY23 owing to steep rise in raw material expense.
* EBITDA grew by 52% YoY at Rs960mn (YSLe: Rs1bn) with EBITDA margins contracting by ~20bps at 5.8% vs 6.0% in 1QFY22 owing to rise in other costs and lower gross margins.
* PBT grew by 45% primarily on a low base of 1QFY22.
* Adj.PAT came in at Rs590mn (Rs424mn in 1QFY22), up 39% YoY.
* Order inflow came in at Rs23.1b, a growth of 36% YoY.
* Order book stood at Rs95.5bn, up 56% YoY providing a strong revenue visibility for 1?2 years.
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