Anda di halaman 1dari 10

1QFY2014 Result Update | Capital Goods

July 27, 2013

Thermax
Performance Highlights
Quarterly highlights (Standalone)
(` cr) Revenue EBITDA EBITDA margin (%) PAT 1QFY14 863 81 9.4 50 1QFY13 983 96 9.8 67 % chg (yoy) (12.3) (15.5) (36)bp (25.2) 4QFY13 1,468 167 11.4 115 % chg (qoq) (41.2) (51.3) (195)bp (56.4)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 7,022 (667) 0.9 684/463 12,297 2 19,748 5,886 THMX.BO TMX@IN

`589 -

Source: Company, Angel Research

For 1QFY2014, Thermaxs top-line and bottom-line performance was below our expectations as well as street estimates. The company reported a 12.3% yoy decline in top-line to `863cr (our estimate was of `944cr), mainly due to slow execution in the Energy segment (segmental revenue down by 17.2% yoy to `634cr). The Management indicated procedural delays in a couple of government projects as one of the reasons for slow execution in the Energy segment. Revenue from the Environmental segment came in almost flat yoy to `240cr. On the operating front, OPM contracted by 36bp yoy to 9.4% (our estimate was of 9.8%), mainly due to mark to market forex loss of `2.4cr. Falling revenue and margin contraction led to a yoy fall of 25.2% in the company's PAT to `50cr. Order intake and backlog: The company reported an 85% yoy growth in order inflow to `2,611cr on a consolidated basis, primarily due to it bagging a large order worth `1,700cr for design, manufacture and commissioning of 9 CBFC boilers. Consequently, the consolidated order backlog is up 25% yoy to `6,322cr, implying an order backlog of 1.4x its trailing 4-quarters revenue. The Managements commentary indicated dearth of large orders, with many companies deferring capex plans. However, order inquiries indicate visibility of short cycle orders. Thermax- BW JV to weigh on the consolidated profits: The companys super-critical boiler plant is expected to be commissioned in 3QFY2014 and likely to incur losses (`100cr plus) due to fixed costs and interest expenses (due to lack of orders). For 1QFY2014, Thermax-BW JV incurred a loss of `7.8cr Outlook and valuation: Thermax remains one of the most expensive stocks in our coverage universe trading at 17.9x FY2015 EPS estimates. Amid a weakening working capital outlook and dearth of large orders, we expect Thermaxs return ratios to continue to remain subdued. We also expect Thermax- BW JV to weigh on the consolidated profits going forward as its utilization remains muted. Hence, we maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 62.0 8.8 14.6 14.6

Abs. (%) Sensex Thermax

3m

1yr

3yr 9.6 (23.7)

1.8 17.2 2.1 15.4

Key financials (Consolidated)


Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2012
6,091 14.1 404 5.7 9.7 33.9 17.4 4.3 27.4 28.9 1.0

FY2013
5,492 (9.8) 320 (20.7) 8.9 26.9 21.9 3.8 18.3 18.0 1.2

FY2014E
5,832 6.2 343 7.1 9.1 28.8 20.5 3.3 17.2 16.2 1.1 12.6

FY2015E
6,397 9.7 392 14.4 9.6 32.9 17.9 2.9 17.3 16.3 1.0 10.8 Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

10.7 13.6 Source: Company, Angel Research; Note: CMP as of July 26, 2013

Please refer to important disclosures at the end of this report

Thermax | 1QFY2014 Result Update

Exhibit 1: Quarterly performance (Standalone)


(` cr) Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (EBITDA %) Interest Depreciation Other Income PBT (% of total income) Total Tax (% of PBT) Reported PAT (PAT %) EPS (`)
Source: Company, Angel Research

1QFY14 851 11.8 863 (1.7) 504 58.3 99 1.1 180 2.1 781 81 9.4 1 14 8 75 8.6 24 32.6 50 5.8 4.2

1QFY13 973 10.4 983 (9.3) 666 66.8 90 0.9 140 1.4 887 96 9.8 4 13 19 98 10.0 31 31.5 67 6.8 5.6

% chg (yoy) (12.5) (12.3) (24.3) 10.1 28.5 (11.9) (15.5) (78.9) 7.8 (56.5) (24.1) (21.5) (25.2) (25.2)

4QFY13 1,449 19.5 1,468 5.0 998 68.3 108 0.7 190 1.3 1,301 167 11.4 0 15 24 177 12.0 61 34.7 115 7.9 9.7

% chg (qoq) (41.3) (41.2) (49.5) (8.0) (5.7) (39.9) (51.3) 68.1 (1.9) (66.7) (57.8) (60.4) (56.4) (56.4)

FY2013 4,632 59 4,691 (3) 3,176 67.7 402 10.0 618 19.5 4,194 497 10.6 10 55 83 515 11.0 166 32.1 350 7.5 29.4

FY2012 5,244 60 5,304 (4) 3,684 69.4 387 8.6 661 17.9 4,729 575 10.8 6 47 78 601 11.3 194 32.3 407 7.7 34.1

% chg (qoq) (11.7) (11.6)

3.6 (6.4) (11.3) (13.5) 73.3 17.1 5.7 (14.2) (14.6) (14.0) -

Exhibit 2: Segmental performance


Y/E March (` cr) Revenue Energy Environment Total Revenue* EBIT Energy Environment Total EBIT Revenues mix (%) Energy Environment EBIT Margin (%) Energy Environment Total 11.5 9.0 10.8 10.7 10.1 10.6 10.5 11.8 10.8 10.4 10.5 10.5 10.7 12.4 11.1 72.6 27.4 75.9 24.1 76.5 23.5 76.3 23.7 76.4 23.6 73 21 95 82 25 107 (11.0) (12.7) (11.4) 119 41 160 (38.5) (48) (41) 380 119 499 443 160 602 (14.2) (25.6) (17.2) 634 240 874 765 243 1,009 (17.2) (1.4) (13.4) 1,139 350 1,489 (44.4) (31.5) (41.3) 3,638 1,131 4,769 4,151 1,285 5,436 (12.4) (12.0) (12.3) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)

Source: Company, Angel Research *before intersegment revenue

July 27, 2013

Thermax | 1QFY2014 Result Update

Revenue declines sharply by 12.3% yoy


For 1QFY2014, Thermaxs top-line and bottom-line performance were below our expectations as well as street estimates. The company reported a 12.3% yoy decline in top-line to `863cr (our estimate of `944cr), mainly due to slow execution in the Energy segment (segmental revenue down by 17.2% yoy to `634cr). The Management indicated procedural delays in a couple of government projects as one of the reasons for slow execution in the Energy segment. Revenue from the Environmental segment came in almost flat yoy to `240cr. On the operating front, OPM contracted by 36bp yoy to 9.4% (our estimate was of 9.8%), mainly due to mark to market forex loss of `2.4cr. Falling revenue and margin contraction led to a yoy fall of 25.2% in the company's PAT to `50cr.

Exhibit 3: Sales decline yoy


1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 (30.0) 32.2 19.4 2.3 (4.5) 45.0 (8.5) (5.8) (13.0) (17.5) 30.0 (12.3) 15.0 0.0 (15.0)

Exhibit 4: EBITDA and EBITDA Margin


200 180 160 140 120 100 80 60 40 20 0 10.6 11.8 10.9 10.7 10.8 9.8 10.2 10.7 9.4 11.0 11.4 16 12 8 4 0 20

1,687

1,303

1,269

1,192

1,044

1,047

983

1,468

12.2 11.8

863

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

Sales (` cr, LHS)

Growth (yoy %, RHS)

EBITDA (` cr, LHS)

EBITDAM (%, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Thermax- BW JV to weigh on the consolidated profits


The companys super-critical boiler plant is expected to be commissioned in 3QFY2014. However, securing orders is expected to be difficult as the slowdown in investments has led to lower orders and higher competitive intensity. Hence, the company is expected to incur losses (`100cr plus) due to fixed costs and interest expenses. For 1QFY2014, Thermax-BW JV incurred a loss of `7.8cr

July 27, 2013

1QFY14

Thermax | 1QFY2014 Result Update

Strong order intake in the quarter


The company reported an 85% yoy growth in order inflow to `2,611cr on a consolidated basis, primarily due to it bagging a large order worth `1,700cr for design, manufacture and commissioning of 9 CBFC boilers. Consequently, the consolidated order backlog is up 25% yoy to `6,322cr, implying order backlog of 1.4x its trailing 4-quarters revenue. The Energy segments backlog stood at `5,288cr (84% of total) and the Environment segment constituted `1,034cr (16% of total) of the order book.

Exhibit 5: Order book detail (Consolidated)


8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2611 1,840 1,408 1,234 1,528 1,688 1,284 742 918 1,412 1,320 1,454 1366 6,984 7,276 7,154 6,446 6,804 6,531 5,809 4,828 5,042 4,984 5,190 4878

6322

(` cr)

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

Order inflows
Source: Company, Angel Research

Order backlog

The Managements commentary indicated dearth of large orders, with many companies deferring capex plans. However, order enquiries indicate visibility of short cycle orders from sectors such as food processing and pharma among others.

Outlook
Deteriorating return ratios a concern
Over the years, Thermax has commanded a premium over its peers in the capital goods space due to its excellent return ratios and strong balance sheet which is owing to excellent working capital management and stable operating margins. However, due to the current persistent slowdown, we expect both these levers to remain under pressure, leading to subdued return ratios (from ~27.4% in FY2012 to ~17.2% in FY2014E) along with stretched working capital requirements. Moreover, we expect Thermax- BW JV to weigh on the consolidated profitability of the group going forward as utilization remains muted.

July 27, 2013

1QFY14

Thermax | 1QFY2014 Result Update

Valuation
Thermax remains one of the most expensive stocks in our coverage universe trading at 17.9x FY2015 EPS estimates. Amid a weakening working capital outlook and dearth of large orders, we expect Thermaxs return ratios to continue to remain subdued. We also expect Thermax- BW JV to weigh on the consolidated profits going forward as its utilization remains muted. Hence, we maintain our Neutral rating on the stock.

Exhibit 6: One-year forward P/E band


1,000 900 800 700 600 500 400 300 200 100 0

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

May-07

May-08

May-09

May-10

May-11

May-12

Sep-12

Share Price (`)


Source: Company, Angel Research

6x

12x

18x

24x

Exhibit 7: Peer comparison


Company ABB* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Reco. Sell Neutral Buy Buy Neutral Buy Neutral CMP (`) 611 159 105 86 18 32 589 Tgt. price (`) 461 140 117 49 Upside (%) (24.6) 32.8 36.1 53.6 P/BV(x) FY14E 4.8 1.7 0.6 1.4 0.5 0.7 3.3 FY15E 4.6 1.5 0.5 1.3 0.5 0.6 2.9 P/E(x) FY14E 53.0 7.7 4.8 13.0 2.5 5.3 20.5 FY15E 36.1 9.9 4.4 9.7 1.8 3.8 17.9 FY2013-15E EPS CAGR 61.6 (23.3) 3.6 47.5 83.5 10.7 RoE (%) FY14E 9.3 23.5 22.3 11.4 8.6 20.2 17.2 FY15E 13.1 16.1 20.3 14.0 11.0 23.0 17.3

Source: Company, Angel Research; Note:*December year ending.

Company description
Thermax provides a range of engineering solutions to the Energy and Environment sectors, aided through a combination of technology and strategic alliances. The company offers industrial boilers (small/medium-sized) and integrated solutions in the areas of heating, cooling, power, waste management, air pollution controls and chemicals. After attaining a leadership position in the mid-sized industrial boilers market, the company (through a JV with Babcock and Wilcox) has forayed into supercritical boilers to reap the opportunities outlined in the Indian power sector.

July 27, 2013

May-13

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Thermax | 1QFY2014 Result Update

Profit & Loss statement (consolidated)


Y/E March (` cr) Net Sales Other Opr. income Total Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Others Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 3,368 3,368 (2.7) 2,973 2,027 616 330 395 (6.4) 11.7 44 351 (9.4) 10.4 2 52 13.0 400 (5.4) 114.9 286 142 49.6 144 (0.4) 144 259 (9.9) 7.7 21.8 21.8 (9.9) 5,336 5,336 58.5 4,763 3,625 678 460 574 45.4 10.8 54 520 48.3 9.7 4 58 10.1 574 43.3 574 197 34.3 377 (4.7) 382 382 47.3 7.2 32.0 32.0 47.3 6,091 6,091 14.1 5,499 3,844 1,098 558 592 3.1 9.7 66 526 1.1 8.6 12 83 13.9 596 4.0 596 204 34.3 392 (11.4) 404 404 5.7 6.6 33.9 33.9 5.7 5,492 5,492 (9.8) 5,002 3,316 1,074 612 490 (17.2) 8.9 77 413 (21.4) 7.5 17 85 17.6 481 (19.3) 481 177 36.8 304 (16.1) 320 320 (20.7) 5.8 26.9 26.9 (20.7) 5,832 5,832 6.2 5,302 3,645 1,108 548 531 8.3 9.1 99 432 4.5 7.4 22 87 17.6 497 3.3 497 171 34.3 327 (16.1) 343 343 7.1 5.9 28.8 28.8 7.1 6,397 6,397 9.7 5,783 3,966 1,215 601 614 15.7 9.6 127 487 12.8 7.6 23 96 17.1 560 12.7 560 192 34.3 368 (24.1) 392 392 14.4 6.1 32.9 32.9 14.4

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

July 27, 2013

Thermax | 1QFY2014 Result Update

Balance Sheet (consolidated)


Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Other Current Assets Total Assets
previous year numbers

FY2010 24 1,054 1,078 9 8 14 1,110 742 205 537 11 370 2,431 670 328 59 2,239 191 0 1,110

FY2011 24 1,291 1,315 52 148 30 1,545 1,068 282 785 35 241 2,997 688 360 135 2,514 482 1,545

FY2012 24 1,606 1,629 112 270 86 2,098 1,193 349 844 247 240 3,230 698 243 160 2,575 654 113 2,098

FY2013 24 1,845 1,869 110 421 92 2,492 1,296 424 873 517 443 2,882 321 162 163 2,473 409 250 2,492

FY2014E 24 2,090 2,114 110 501 104 2,829 1,895 522 1,372 219 443 3,208 383 321 117 2,643 565 230 2,829

FY2015E 24 2,385 2,408 110 509 116 3,144 2,204 650 1,554 210 388 3,478 486 384 128 2,696 782 210 3,144

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

July 27, 2013

Thermax | 1QFY2014 Result Update

Cash flow statement (consolidated)


Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in WC Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2010 FY2011 FY2012 286 44 469 52 142 604 (74) (227) 52 (249) 4 69 11 (66) 301 370 670 574 54 (273) 58 197 100 (350) 129 58 (163) 155 125 50 81 18 670 688 596 66 (162) 83 204 214 (449) 2 83 (365) 179 70 52 161 10 688 698

FY2013 FY2014E FY2015E 481 77 (132) 85 177 164 (511) (203) 85 (630) 157 69 1 88 (377) 698 321 497 99 (95) 87 171 244 (280) 87 (192) 92 98 16 10 62 321 383 560 127 (113) 96 192 286 (280) 55 96 (129) 20 98 24 (54) 104 383 486

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

July 27, 2013

Thermax | 1QFY2014 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin (%) Tax retention ratio Asset turnover (x) ROIC (Post-tax) (%) Cost of Debt (Post Tax) (%) Leverage (x) Operating RoE (%) Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Int. coverage (EBIT / Int.)
previous year numbers

FY2010 FY2011 FY2012 27.1 23.1 6.5 0.8 1.8 15.2 5.4 1.8 21.8 21.8 25.5 5.0 90.5 10.4 0.5 3.2 16.7 17.0 16.7 33.0 118.1 25.0 4.8 29 74 64 (27) (0.9) (2.6) 172.7 18.4 16.1 5.3 1.5 1.2 10.9 4.0 1.2 32.0 32.0 36.6 9.0 110.4 9.7 0.7 4.0 25.7 3.5 25.7 39.2 123.0 31.9 5.9 21 64 56 (23) (0.6) (1.3) 126.8 17.4 14.9 4.3 1.2 1.0 10.7 3.0 0.8 33.9 33.9 39.4 7.0 136.7 8.6 0.7 3.3 19.0 3.8 19.0 28.9 156.8 27.4 5.4 22 73 56 (7) (0.4) (1.1) 43.2

FY2013 FY2014E FY2015E 21.9 17.7 3.8 1.2 1.2 13.6 2.7 0.9 26.9 26.9 33.3 7.0 156.8 7.5 0.6 2.4 11.4 3.1 11.4 18.0 69.7 18.3 4.4 24 97 57 1 (0.2) (0.7) 25.0 20.5 15.9 3.3 1.2 1.1 12.6 2.4 0.9 28.8 28.8 37.1 7.0 177.4 7.4 0.7 2.2 10.7 3.2 10.7 16.2 38.9 17.2 3.7 24 92 55 8 (0.2) (0.6) 19.5 17.9 13.5 2.9 1.2 1.0 10.8 2.1 0.9 32.9 32.9 43.6 7.0 202.1 7.6 0.7 2.1 10.7 0.0 10.7 16.3 28.8 17.3 3.1 24 80 55 14 (0.2) (0.6) 21.4

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

July 27, 2013

Thermax | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Thermax No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

July 27, 2013

10