Thermax Result Updated

7/31/2019 Thermax Result Updated

1/11

Please refer to important disclosures at the end of this report 1

(` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq)Revenue 1,687 1,767 (4.5) 1,269 32.9EBITDA 185 187 (1.0) 135 36.8

EBITDA margin (%) 11.0 10.6 39bps 10.7 31.7bps

PAT 130 126 2.6 95 35.9Source: Company, Angel Research

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 reduceour 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 Neutralrecommendation on the stock.Execution decelerates; but nearly offset by margin expansion: For 4QFY2012,Thermax posted a revenue decline of 4.5% yoy to `1,687cr (`1,767cr), which was

lower than our estimate of `1,789cr. The energy segment was again a laggard,

declining by 7.6% yoy to `1,321cr (`1,430cr), with the environment segment

growing by 10.0% yoy to `421cr (`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 `185cr, declining by 1% yoy and

lower than our estimate of `189.6cr. Margin expansion as well as increased other

income helped offset the decline in revenue, with PAT coming in at `130cr,

registering a 2.6% yoy increase.

Outlook and valuation: The stock currently trades at 14.4x and 15.0x on ourFY2013E 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.Key financials (Consolidated)Y/E March (` cr) FY2011 FY2012 FY2013E FY2014ENet Sales 5,336 6,091 5,514 5,559% chg 58.5 14.1 (9.5) 0.8

Net Profit 382 407 354 338% chg 47.3 6.6 (13.1) (4.4)

EBITDA (%) 10.8 9.9 9.8 9.6

EPS (`) 32.0 34.1 29.7 28.4P/E (x) 13.3 12.5 14.4 15.0

P/BV (x) 3.9 3.1 2.7 2.4

RoE (%) 31.9 27.7 20.2 16.9RoCE (%) 39.2 32.0 23.9 20.5

EV/Sales (x) 0.8 0.9 0.8 0.7

EV/EBITDA (x) 7.4 7.7 8.7 8.4

Source: Company, Angel Research

NEUTRALCMP `426

Target Price -

Investment Period 12Months

Stock Info

Sector

Market Cap (`cr)

Beta

52 Week High / Low

Avg. Daily Volume

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Bloomberg Code

Shareholding Pattern (%)

Promoters 62.0

MF / Banks / Indian Fls 10.8

FII / NRIs / OCBs 12.2

Indian Public / Others 15.0

Abs. (%) 3m 1yr 3yr

Sensex (9.1) (12.5) 36.6

Thermax (9.8) (28.9) 58.6

TMX@IN

16,216

4,908

THMX.BO

675/388

18,088

2

Capital Goods

5,082

0.9

Rahul Kaul+91 22 3937 7600 Ext: 6817

[email protected]

ThermaxPerformance Highlights

4QFY2012 Result Update | Capital Goods

May 14, 2012


2/11

Thermax | 4QFY2012 Result Update

May 14, 2012 2

Exhibit 1:Quarterly performance (Standalone)(` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq) FY2012 FY2011 % chg (qoq)Net Sales 1,661 1,745 (4.8) 1,263 31.5 5,244 4,788 9.5Other operating income 26 21 6 - 60 101Total income 1,687 1,767 (4.5) 1,269 32.9 5,304 4,889 8.5Stock adjustments 21 7 (5) (3) 1

Raw Material 1,149 1,275 (9.9) 873 31.5 3,684 3,415

(% of total income) 69.4 72.6 68.5 69.4 69.9

Employee Cost 94 96 (2.8) 104 (9.6) 387 368 5.1

(% of total income) 0.6 0.5 0.8 8.6 9.0

Other Expenses 236 199 18.5 160 47.1 651 546 19.2

(% of total income) 1.4 1.1 1.3 17.7 16.0

Total Expenditure 1,502 1,580 (4.9) 1,134 32.4 4,720 4,331 9.0EBITDA 185 187 (1.0) 135 36.8 583 558 4.6(EBITDA %) 11.0 10.6 10.7 11 11

Interest 3 1 250 1 385.5 6 2 199.9

Depreciation 12 11 4 12 0.8 47 43 8.6

Other Income 27 21 29 15 73.6 70 60 17.4

PBT 197 196 0.7 138 42 601 572 4.9(% of total income) 11.7 11.1 10.9 11.3 11.7

Total Tax 67 69 (2.7) 43 57 194 190 2.0

(% of PBT) 34.1 35.3 31.0 32.3 33.2

Reported PAT 130 126 2.6 95 36 406 382 6.4(PAT %) 7.7 7.2 7.5 7.7 7.8 -EPS (`) 10.9 10.6 2.6 8.0 35.9 34.1 32.1


Exhibit 2:Actual vs. estimates(` cr) Actual Estimates Var. (%)Revenue 1,687 1,789 (5.7)EBITDA 185.3 189.6 (2.3)

Interest 3.4 0.8 323.2

Tax 67.3 61.9 8.7

PAT 129.8 128.5 1.0Source: Company, Angel Research


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May 14, 2012 3

Exhibit 3:Segmental performanceY/E March (` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq) FY2012 FY2011 % chg (yoy)RevenueEnergy 1,321 1,430 (7.6) 993 33.0 4,151 3,918 5.9Environment 421 383 10.0 302 39.2 1,285 1,147 12.0

Total Revenue 1,742 1,813 (3.9) 1,295 34.4 5,436 5,065 7.3EBITEnergy 135 149 10.4 95 42.8 421 416 1.3

Environment 59 50 (15.5) 39 50 162 148 9.5

Total EBIT 194 199 2.5 134 45 583 564 3.4Revenue mix (%)Energy 75.8 78.9 76.7 76.4 77.4

Environment 24.2 21.1 23.3 23.6 22.6

EBIT Margin (%)Energy 10.2 10.4 9.5 10.1 10.6

Environment 14.0 13.0 13.0 12.6 12.9

Total 11.2 11.0 10.3 10.7 11.1Source: Company, Angel Research

Segmental performance: The decline in revenue was due to the energy segment,which saw a fall in revenue of 7.6% yoy to `1,321cr. The energy segments EBIT

margin slightly declined to 10.2% in 4QFY2012 from 10.4% in 4QFY2011.

The environment segments revenue, on the other hand, grew by 10% yoy to

`421cr, with EBIT margin expanding to 14.0% in 4QFY2012 from 13.0% in

4QFY2011. The companys EBITDA for the quarter stood at `185cr, declining by1% yoy and lower than our estimate of `189.6cr. Margin expansion as well as the

increase in other income, helped offset the decline in revenue, with PAT coming in

at `130cr, registering 2.6% yoy growth.

Exhibit 4: Revenue headed southwards


Exhibit 5:EBITDAM remained stable


(4.7)

2.8

(24.1)(15.8)

(5.9)

28.6

45.2

61.365.9

44.9

32.2

19.4

2.3(4.5)

(30.0)

(15.0)

0.0

15.0

30.0

45.0

60.0

75.0

0

200

400

600800

1,000

1,200

1,400

1,600

1,800

2,000

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

Sales (` cr, LHS) Growth (yoy %, RHS)

13.5

16.8

12.711.711.9

2.6

12.211.8 11.810.6 10.910.810.711.0

-

4.0

8.0

12.0

16.0

20.0

020406080

100120140160180200

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

EBITDA (` cr, LHS) EBITDAM (%, RHS)


4/11


May 14, 2012 4

Order intake continues to disappoint: Weak investment climate prevailing in thedomestic markets led to poor order disbursements across major sectors. Against

this backdrop, Thermax reported a 40% yoy decline in its order intake to `918cr

(energy segment `

639cr and environment segment `

279cr). Amidst weakinflows, the order backlog declined by 25.1% yoy to `4,828cr (energy segment

`3,841cr and environment segment `987cr).

Management commentary indicated a weakening outlook and a tougher business

environment, which imply slackening order intake for the rest of the year. We

remain cautious with a downward bias and estimate an order inflow of `5,041cr

and `5,868cr for FY2013E and FY2014E, respectively.

Exhibit 6:Order book detail (Consolidated)


Key highlights of the conference call

Investment climate remains plagued due to elevated interest rate, landacquisition challenges and deepening fuel crisis. This has considerably

affected order finalization across various sectors. Management noted that it

could expect few mid to large-size ticket orders in the first two quarters;

however, the investment climate has not changed much.

Management reiterated that it would maintain its strategy of remainingselective in picking orders.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(`

cr)

Order inflows Order backlog


5/11


May 14, 2012 5

Change in estimates: Amidst a weakening business environment, we remaincautious with a downward bias over order intake for the next couple of quarters

and accordingly lower our order inflow estimates by 5.8% for FY2013E and 8.6%

for FY2014E. We tweak our margin assumptions lower for FY2013E and retain ourmargin estimates for FY2014E.

Exhibit 7:Change in estimatesFY2013E FY2014E

(` cr) Earlier estimates Revised estimates Var. (%) Earlier estimates Revised estimates Var. (%)Revenue 5,473 5,514 0.7 5,497 5,514 0.3

EBITDA 553 540 (2.3) 539 540 0.3

EBITDA (%) 10.1 9.8 (30.0) 9.8 9.8 (0.0)

Adj. PAT 362 354 (2.3) 341 338 (1.0)

EPS (`) 30.4 29.7 (2.3) 28.7 28.4 (1.0)

Order Inflows 5,349 5,041 (5.8) 6,418 5,868 (8.6)


Outlook

Deteriorating business environment continues

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 owing to

excellent working capital and stable operating margins. However, due to the

current persistent slowdown, we expect both these levers to be under pressure,

leading to pressure on return ratios (from ~30% in FY2011 to ~20% in FY2014)along with stretched working capital requirements.

Exhibit 8:Return ratios on a declining trend...


0

10

20

30

40

50

FY2010 FY2011 FY2012E FY2013E FY2014E

ROCE ROE


6/11


May 14, 2012 6

ValuationThe stock remains one of the most expensive stocks in the capital goods space,

trading at 14.4x and 15.0x PE on our FY2013E and FY2014E EPS estimates,

respectively. On account of relatively expensive valuations coupled with

deteriorating fundamentals, we maintain our Neutral rating on the stock.Exhibit 9:Angel EPS forecast

Angel Bloomberg Var. (%)FY2013E 29.7 31.4 (8.9)

FY2014E 28.4 34.1


Exhibit 10:One-year forward P/E band


Exhibit 11: Peer comparisonCompany Reco. CMP Tgt. price Upside P/BV(x) P/E(x) FY2011-13E RoCE (%) RoE (%)

(`) (`) (%) FY13E FY14E FY13E FY14E EPS CAGR FY13E FY14E FY13E FY14EABB* Sell 712 498 (30.1) 5.2 4.6 38.2 34.0 55.0 21.1 20.9 14.5 14.4

BHEL Neutral 217 - - 1.8 1.6 9.2 9.0 (6.3) 26.7 24.0 21.3 18.9

BGR Energy Neutral 285 - - 1.7 1.5 10.5 9.4 1.4 10.1 9.9 17.3 17.4

Crompton Greaves Buy 113 164 45.4 1.8 1.6 10.4 9.6 33.4 19.5 20.2 18.4 17.3

Jyoti Structures Buy 39 67 71.9 0.4 0.4 3.6 2.9 5.9 18.2 19.6 12.7 13.9

KEC International Buy 52 73 41.5 0.9 0.8 4.9 4.2 2.5 21.5 21.1 25.9 24.0

Thermax Neutral 426 - - 2.7 2.4 14.4 15.0 (8.9) 23.9 20.5 20.2 16.9Source: Company, Angel Research; Note:*December year ending.

0

140

280

420

560

700

840

980

Oc

t-05

Feb-06

Jun-06

Oc

t-06

Feb-07

Jun-07

Oc

t-07

Feb-08

Jun-08

Oc

t-08

Feb-09

Jun-09

Oc

t-09

Feb-10

Jun-10

Oc

t-10

Feb-11

Jun-11

Oc

t-11

Feb-12

Share Price (`) 5x 10x 15x 20x


7/11


May 14, 2012 7

Profit & loss statement (consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014ENet Sales 3,460 3,368 5,336 6,091 5,514 5,559Other Opr. income - - - - - -Total Income 3,460 3,368 5,336 6,091 5,514 5,559% chg (0.6) (2.7) 58.5 14.1 (9.5) 0.8

Total Expenditure 3,038 2,973 4,763 5,488 4,973 5,025

Net Raw Materials 2,080 2,027 3,625 4,148 3,782 3,813

Other Mfg costs 670 616 678 792 695 711

Personnel 288 330 460 548 496 500

Other - - - - - -

EBITDA 422 395 574 603 540 534% chg (1.1) (6.4) 45.4 5.0 (10.4) (1.2)

(% of Net Sales) 12.2 11.7 10.8 9.9 9.8 9.6

Depn & Amort. 35.1 44.2 54.1 70.5 84.4 90.3

EBIT 387 351 520 532 456 443% chg (4.2) (9.4) 48.3 2.4 (14.3) (2.8)

(% of Net Sales) 11.2 10.4 9.7 8.7 8.3 8.0

Interest & other Charges 4 2 4 3 3 3

Other Income 40 52 58 65 70 60

(% of PBT) 9.5 13.0 10.1 10.9 13.4 12.0

Others - - - - - -

Recurring PBT 423 400 574 594 523 501% chg (5.0) (5.4) 43.3 3.6 (11.9) (4.3)

Extraord. Exp/(Inc.) (1.4) 114.9 - - - -

PBT (reported) 425 286 574 594 523 501Tax 136 142 197 190 170 163

(% of PBT) 32.0 49.6 34.3 32.0 32.5 32.5

PAT (reported) 289 144 377 404 354 338Add: earnings of associate - - - - - -

Less: Minority interest (MI) - (0.4) (4.7) - - -

Prior period items - - - - - -

PAT after MI (reported) 289 144 382 404 354 338ADJ. PAT 288 259 382 407 354 338% chg (0.4) (9.9) 47.3 6.6 (13.1) (4.4)(% of Net Sales) 8.3 7.7 7.2 6.7 6.4 6.1

Basic EPS (`) 24.1 21.8 32.0 34.1 29.7 28.4Fully Diluted EPS ( ) 24.1 21.8 32.0 34.1 29.7 28.4% chg (0.4) (9.9) 47.3 6.6 (13.1) (4.4)


8/11


May 14, 2012 8

Balance Sheet (consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014ESOURCES OF FUNDSEquity Share Capital 24 24 24 24 24 24Preference Capital - - - - - -

Reserves& Surplus 968 1,054 1,291 1,598 1,853 2,094

Shareholders Funds 991 1,078 1,315 1,621 1,877 2,118Minority Interest - 9 52 52 52 52Total Loans 4 8 148 80 80 80

Deferred Tax Liability 16 14 30 30 30 30

Total Liabilities 1,011 1,110 1,545 1,783 2,039 2,280APPLICATION OF FUNDSGross Block 661 742 1,068 1,283 1,438 1,572

Less: Acc. Depreciation 170 205 282 353 437 528

Net Block 491 537 785 930 1,001 1,045Capital Work-in-Progress 18 11 35 20 15 21

Goodwill - - - - - -

Investments 143 370 241 482 552 602

Current Assets 1,732 2,431 2,997 2,856 2,598 2,934Cash 370 670 750 271 209 407

Loans & Advances 222 328 360 396 358 306

Other 41 59 73 110 110 111

Current liabilities 1,372 2,239 2,514 2,506 2,127 2,323

Net Current Assets 359 191 482 350 471 612Mis. Exp. not written off 0 0 0 0 0 0

Total Assets 1,011 1,110 1,545 1,783 2,039 2,280


9/11


May 14, 2012 9

Cash flow statement (consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EProfit before tax 425 286 574 594 523 501

Depreciation 35 44 54 71 84 90(Inc)/Dec in WC (187) 469 (212) (347) (182) 57

Less: Other income 40 52 58 65 70 60

Direct taxes paid 133 142 195 190 170 163

Cash Flow from Operations 99 604 163 63 186 425(Inc.)/Dec in Fixed Assets (186) (74) (350) (200) (150) (140)

(Inc.)/Dec. in Investments 417 (227) 129 (241) (70) (50)

Other income 40 52 58 65 70 60

Cash Flow from Investing 272 (249) (163) (376) (150) (130)Issue of Equity (0) - - - - -

Inc./(Dec.) in loans 4 4 140 (68) - -

Dividend Paid (Incl. Tax) 70 69 125 98 98 98

Others 7 11 42 - - -

Cash Flow from Financing (66) (66) 15 (165) (98) (98)Inc./(Dec.) in Cash 312 300 57 (479) (62) 197

Opening Cash balances 58 370 670 750 271 209Closing Cash balances 370 670 750 271 209 407


10/11


May 14, 2012 10

Key Ratios

Y/E March FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EValuation Ratio (x)P/E (on FDEPS) 17.4 19.3 13.1 12.3 14.2 14.8P/CEPS 15.5 16.5 11.5 10.5 11.4 11.7

P/BV 5.0 4.6 3.8 3.1 2.7 2.4

Dividend yield (%) 1.2 1.2 2.1 1.7 1.7 1.7

EV/Sales 1.3 1.2 0.8 0.9 0.8 0.7

EV/EBITDA 10.7 10.1 7.3 7.6 8.6 8.2

EV/Total Assets 4.5 3.6 2.7 2.6 2.3 1.9

OB/Sales 0.9 1.8 1.2 0.8 0.8 0.8

Per Share Data (`)EPS (Basic) 24.1 21.8 32.0 34.1 29.7 28.4

EPS (fully diluted) 24.1 21.8 32.0 34.1 29.7 28.4

Cash EPS 27.1 25.5 36.6 40.1 36.8 35.9

DPS 5.0 5.0 9.0 7.0 7.0 7.0

Book Value 83.2 90.5 110.4 136.1 157.6 177.7

DuPont AnalysisEBIT margin (%) 11.2 10.4 9.7 8.7 8.3 8.0

Tax retention ratio 0.7 0.5 0.7 0.7 0.7 0.7

Asset turnover (x) 3.9 3.2 4.0 3.7 2.9 2.6

ROIC (Post-tax) (%) 29.5 16.7 25.7 22.7 16.1 13.9

Cost of Debt (Post Tax) (%) 127.1 17.0 3.5 1.9 2.2 2.1

Leverage (x) - - - - - -

Operating RoE (%) 29.5 16.7 25.7 22.7 16.1 13.9

Returns (%)RoCE (Pre-tax) 43.3 33.0 39.2 32.0 23.9 20.5

Angel RoIC (Pre-tax) 127.6 118.1 123.0 172.9 59.2 31.9

RoE 32.9 25.0 31.9 27.7 20.2 16.9

Turnover ratios (x)Asset Turnover (Gross Block) 6.3 4.8 5.9 5.2 4.1 3.7

Inventory / Sales (days) 26 29 21 22 24 24

Receivables (days) 58 74 64 65 70 72

Payables (days) 46 64 56 56 57 55

WC cycle (ex-cash) (days) (11) (27) (26) (6) 11 15Solvency ratios (x)Net debt to equity (0.5) (0.9) (0.6) (0.3) (0.2) (0.3)

Net debt to EBITDA (1.2) (2.6) (1.4) (0.7) (0.7) (1.1)

Int. coverage (EBIT / Int.) 101.5 172.7 126.8 164.6 174.0 174.4


11/11


May 14, 2012 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. 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 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 reliablesources 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 thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking 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. WhileAngel Broking 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,

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Angel Broking 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

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Neither Angel Broking 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 thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement Thermax

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

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Thermax Result Updated

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