Thermax - Strong cashflows - ICICI Securities

Strong outperformance in the chemical segment and turnaround of overseas subsidiaries offset weak execution in energy and environment divisions. Focus on improving collections and control over working capital resulted in strong operating cashflow of Rs4.1bn in H1FY21. However, the outlook on European subsidiary Danstoker continues to be challenging while the Indonesian entity is likely to perform relatively better. We expect chemical segment margins to normalise and overall execution in other segments to be tepid in the near to medium term. Factoring-in the same, we cut FY21E earnings by 7.6% while we raise FY22E earnings by 5% implying pick-up in execution. Given rich valuation, near-term growth stress and muted ordering activity, we maintain HOLD on the stock with a revised target price of Rs780 (earlier: Rs740).

- Muted execution, challenging near-term outlook: Energy segment revenues declined 34% YoY to Rs8.9bn while environment segment fell 13.5% YoY to Rs1.6bn. Chemical segment revenues however grew 3.6% YoY to Rs1.1bn resulting in overall revenue decline of 29% YoY. Overall order intake was down 35.3% YoY at Rs11.1bn for Q2FY21. Current orderbook at Rs51.9bn (1x TTM sales) implies growth headwinds given higher execution cycle of ~Rs9bn worth of FGD orders. However, the company recently won a medium-sized order of Rs3.2bn from for Assam Bio Refinery Private Limited (ABRPL), which will support medium to long term growth.

- Overseas subsidiaries turnaround: Danstoker and Indonesian subsidiary were profitable in Q2FY21. Indonesian subsidiary order pipeline has improved while the outlook on Danstoker continues to be challenging. Thermax has taken impairment of Rs67mn towards winding up of Omnical business.

- Expect traction from small and medium sized orders in FY21E: Green shoots are visible in terms of waste to energy conversion, waste heat recovery for cement plants, chemicals and food processing. FGD orders are likely to be finalised by the end of FY21E or Q1FY22E.

- Prudent management of cost and optimisation of resources: Company is focused towards cost reduction and optimisation given the stress in terms of growth. It has given VRS to 45 employees and provided Rs100mn towards the same.

- Maintain HOLD: Dependence on private sector capex places Thermax on the backfoot vs peers. Hence, we maintain HOLD on the stock with a revised target price of Rs780 (earlier Rs740).

Shares of THERMAX LTD. was last trading in BSE at Rs.790 as compared to the previous close of Rs. 754.4. The total number of shares traded during the day was 3166 in over 552 trades.

The stock hit an intraday high of Rs. 794.9 and intraday low of 740. The net turnover during the day was Rs. 2464974.

Source : Equity Bulls

Keywords