Buy Thermax; target of Rs 1050: ICICI Direct

November 16
01:42 2017

ICICI Direct’s research report on Thermax

Thermax reported a mixed Q2FY18. Revenues were lower than estimates while EBIDTA margins were ahead of our estimates. For the second quarter in a row the company reported growth in order backlog coupled with growth in order intake Revenues came in at Rs 863.9 crore, down 0.8% (I-direct estimate: Rs 912 crore). Order inflows were in line with estimates at Rs 1185 crore, up 8% YoY. The key positive was the consecutive growth in order backlog at Rs 4819 crore, up 23% YoY, which adds to revenue visibility, going ahead. After many quarters, the company has reported back-to-back growth in order backlog. We believe this will help Thermax return to the growth trajectory Despite lower-than-expected revenues, absolute EBITDA came in at Rs 86 crore vs. our estimate of Rs 79.4 crore. This was mainly on the back of lower other expenses, which declined 20.8% YoY. Consequently, margins came in at 10% vs. our estimate of 8.7% PAT was at Rs 56.8 crore vs. our estimate of Rs 62.6 crore. The shortfall was due to interest costs that were at Rs 3.6 crore during Q2FY18.


With increased traction in order wins and outlook, we expect Thermax to commence its growth journey after three years of dismal performance. We except FY18E to see marginal growth followed by strong FY19E as the order backlog and commissioning of new capacity reinstates our faith in the same. We expect revenue and PAT CAGR of 18% and 19% CAGR, respectively, in FY17-19E. We continue to maintain our BUY recommendation on the stock with a revised target price of Rs 1050/share.

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