Thermax Ltd. share price target

ICICI Securities Ltd | Retail Equity Research Thermax reported a weak set of Q2FY17 results where revenues and EBITDA were below estimates. However, higher share of other income led PAT to come in line with estimates Reported revenue fell 17.6% YoY to ~| 870.8 crore (vs. I-direct estimate: | 973.3 crore). Revenue miss may be largely due to lower carry of order backlog of previous years. In terms of segmental performance, energy segment revenue fell 22.2% YoY to | 652 crore...

Thermax reported a decline in revenue (-13% YoY) and EBITDA (-17% YoY) was on expected lines as it began FY17E with a muted order book. Led by higher other income ( 48% YoY) and profits in B&W JV, PAT decline was restricted to 5% YoY (Rs 708mn). Large order finalisations continue to be elusive leading to a sequentially flattish order book of Rs 45.8bn.

Top takeaways from 1QFY17: Thermax’s 1QFY17 standalone earnings (Rs 452mn; ?10% yoy) were materially below our and consensus estimates. The company disappointed on all metrics.Order inflow declined 19% yoy to Rs 8.2bn on weak domestic end markets coupled with certain deferrals in the international market, which should flow through in 2Q. Management highlighted that the outlook on large domestic orders from key sectors such as metals, power and cement continues to be weak over the next 12 months but expects ordering in the hydrocarbon sector to pick up pace in FY18. Current orders are driven by noncore sectors such as food processing and paint.Phillip Capital maintain Sell rating with a target price of Rs 700 (Rs 615 earlier), as the current stock valuations at 33x FY18 PE look expensive considering a modest 10% CAGR in FY16?18 earnings and RoE’s of 11?12%.

Thermax 1QFY17 result was a miss on both revenue and EBITDA leading to a PAT decline of 19% YoY for the quarter. Revenue (Rs8.1 bn, -17% YoY) declined on the back of weak order book.

Results below estimates: Thermax’s (TMX) 1QFY17 operating performance was below our expectations. Sales declined 20% YoY to INR8.1b (our estimate: INR9.3b), EBITDA fell 19% YoY to INR637m (our estimate: INR937m), EBITDA margin remained stable YoY at 7.8% (our estimate: 10.0%) and net profit was down 19% YoY to INR452m (our estimate: INR627m). Consolidated revenue declined 19% YoY to INR10.0b, while net profit (post minority interest) was down 10% YoY to INR490m. Motilal Oswal also cut their rating from Neutral to Sell with a revised target price of INR730 (25x FY18E EPS of INR29, based on last 10 years’ average P/E multiple), given the weak business outlook and rich valuations.

Thermax reported disappointing Q1FY17 results on all counts. This was on the back of lower carry of order backlog from FY16, which led to execution decline thereby impacting margins and profitability. Order inflows for Q1FY17 were below expectations as well • Revenues declined 18.6% YoY to | 815 crore vs. our estimate of | 881.9 crore. The disappointment stems from the lower carry of order backlog from FY16. On a consolidated basis, revenues declined 18.6% YoY to | 1002 crore . Order inflows continue to disappoint as they declined 20.4% YoY to | 698 crore whereas order backlog witnessed 14.5% YoY decline at | 3653 crore. However, the company is witnessing some pick-up in domestic enquiry for orders in industry like food processing, beverages, pharma, paints and textile industry. ICICI Securities Limited value the stock on an SOTP basis and assign a target price of | 814 with a HOLD recommendation.

And the disappointment continues. With a poor backlog, TMX IN starts FY17 on a bad note. As usual, the core policy-dependent sectors are yet to translate. Adding to the woes, even the outlook is bleak. True, non-policy dependent orders like, for instance, FMCG and waste heat recovery in cement, might save the day. However, they hardly change the direction of dial. Expansion plans are on cards. It is unclear if they can be up and running in full steam to justify the stretched valuations. With bleak order inflows, thereby, we fear the days are darker ahead. We continue with a SELL rating on the stock....

Thermaxs 3QFY16 results missed estimates on revenue and EBITDA, leading to a PAT decline of 11% YoY (14% below our estimates) at Rs 679mn. While revenue (Rs 10.4bn, -8% YoY) was 6% below expectation, EBITDA (9.5%) was a miss of 50bps.