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Thermax Ltd>
  • CMP : 5,143.6 Chg : -21.20 (-0.41%)
  • Target : 2,450.0 (20.99%)
  • Target Period : 12-18 Month

23 May 2022

Strong order inflow buoys visibility…

About The Stock

Thermax Ltd (Thermax) offers integrated solutions in the areas of energy and environment – heating, cooling, power, water & waste management, air pollution control and chemicals.
 It operates in three key segments energy (~70.7% of FY22 revenue), environment segment (~20.6%) and chemicals segment (~8.7%)
 Focus to increase product & services share (~50% in FY22) vs. projects


Thermax reported decent Q4FY22 results.
 Consolidated revenue at ₹ 1991.9 crore, up 26.5% YoY, owing to better execution
 EBITDA came in at ₹ 135.2 crore, down 3.2% YoY, impacted by higher commodity prices and freight cost
 Adjusted PAT came in at ₹ 102.6 crore, down 4.4% YoY
 Order inflows for Q4FY22 was robust at ₹ 3396 crore, up ~127% YoY

What should Investors do?

Strong balance sheet, prudent working capital management, recent technological tie-ups, are expected to support growth.
 We remain long term positive and retain our BUY rating on the stock.

Target Price Valuation

We value Thermax at ₹ 2450 i.e. 45x on FY24E EPS

Key Triggers for future price performance

We expect revenue, EBITDA to grow at CAGR of ~27.8%, 43.3%, respectively, in FY22-24E amid margins gradually returning to normal levels
 Recent broad based recovery in order inflows, strong order enquiry pipeline across industrial sectors likely to ensure decent order inflows, going forward
 Controlled net working capital (NWC), strong balance sheet

New Stock Ideas

We also like Larsen & Toubro in our coverage.
 Focus on asset monetisation to further strengthen the balance sheet and improve return ratios. Strong b/s, controlled working capital and strong cash generation
 BUY with a target price of ₹ 1930

Q4FY22 Earnings Conference Call highlights

For Q4FY22, consolidated order inflow for the quarter came in highest in 10 years at | 3396 crore (vs. | 1494 crore in Q4FY21) with healthy mix of orders from diverse industry sectors. Major sectors in Q4FY22 order inflows include transportation (34%), power (17%), others (12%), food/beverages & packaging (8%), chemical (6%), refinery & petrochemicals (6%), sugar/distillery (4%), pharma (4%), metal & steel (4%), cement (5%). Consolidated order inflows comprise energy segment (| 2385 crore), environment (| 884 crore) & chemicals segment contributed | 127 crore. Domestic order inflows contributed 85.8% to | 2915 crore while export orders were at 14.2% (| 482 crore)
 Consolidated order book as on Q4FY22 was at | 8812 crore, up 68.6% YoY. It consists of ~66.8% from energy sector followed by environment (31.6%) and chemicals (1.6%). Two significant orders bagged during the year include | 1, 176 crores for a sulphur recovery block and | 830 crore for three Flue Gas Desulphurisation (FGD) systems
 Healthy enquiry pipeline was witnessed across multiple segments like cement, steel, sugar, F&B and petrochemicals due to increased capex in private sector. The management highlighted that pipeline is higher by 20% (10% price impact and more than 10% volume driven) compared to pre-Covid levels. The company expects WHRS ordering in the cement space to fructify in the next three to nine months whereas the same cycle may materialise in the steel sector in FY24. On the FGD ordering, the company expects the private sector to step in ordering from now on while it will stay away from SEB business. The legacy orders on the FGD side will have its impact in FY23 and start fading away from FY24. Refinery and petrochemical as a segment will be an area of opportunity in the next three years
 Base orders form 68% of the order inflows in FY22 while the remaining comes from large size orders
 Geographies like Indonesia, Thailand, Malaysia and Philippines are more stable now. The company wants to grow in a calibrated manner in these markets, going ahead
 The company also wants to expand in the solar power nosiness mainly on the industrial side where is targets a capacity addition of 1000 MW in the next three to five years. In FY23, they are planning to add 50-100 MW
ICICI Securities | Retail Research 3
ICICI Direct Research
Result Update | Thermax Ltd
 In FY23, the company’s focus is not to win only big orders with longer lead time but with smaller kind of products & services like waste to energy, green related projects, biomass policies
 Thermax’ current capacity utilisation is at ~90% across all segments. It wants to increase its capacity in the medium to long term in areas like water and chemical business

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