Thermax - 4QFY2012 Result Update - Angel Broking

Thermax announced a muted set of numbers, more or less in-line with our estimates. The decline in revenue for the quarter was offset by margin expansion. The company reported a 40% yoy decline in order intake for the quarter, which was slightly below our expectations. Given the increase in competition, we reduce our order inflow estimates by 5.8% and 8.6% for FY2013E and FY2014E, respectively. Amidst a weakened business environment, we remain cautious with a downward bias over the order intake for the next couple of quarters and accordingly lower our estimates for FY2012/FY2013E. We maintain our Neutral recommendation on the stock.

Execution decelerates; but nearly offset by margin expansion: For 4QFY2012, Thermax posted a revenue decline of 4.5% yoy to Rs.1,687cr (Rs.1,767cr), which was lower than our estimate of Rs.1,789cr. The energy segment was again a laggard, declining by 7.6% yoy to Rs.1,321cr (Rs.1,430cr), with the environment segment growing by 10.0% yoy to Rs.421cr (Rs.383cr). On the operating front, EBITDA margin expanded in-line with our expectation to 11.0% in 4QFY2012 from 10.6% in 4QFY2011. EBITDA for the quarter stood at Rs.185cr, declining by 1% yoy and lower than our estimate of Rs.189.6cr. Margin expansion as well as increased other income helped offset the decline in revenue, with PAT coming in at Rs.130cr, registering a 2.6% yoy increase.

Outlook and valuation: The stock currently trades at 14.4x and 15.0x on our FY2013E and FY2014E EPS estimates, respectively, making it one of the more expensive stocks in the capital goods space. We no longer believe that it should trade at a premium to its peers on account of the further deterioration in fundamentals – stretching working capital requirements and declining return ratios due to intense competition, we remain Neutral on the stock.

Source : Equity Bulls

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