PL Stock Report: Thermax (TMX IN) - Q1FY24 Result Update - Decent performance; healthy enquiry pipeline - Downgrade to 'HOLD'

Thermax (TMX IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs2,602 | TP: Rs2,613

Q1FY24 Result Update - Decent performance; healthy enquiry pipeline

Quick Pointers:

♦ Order inflow of Rs25.7bn (up 11.1% YoY) was largely driven by base order inflows.

♦ Enquiry pipeline continues to remain healthy from food & beverages, metal, chemicals etc. sectors for base orders.

Thermax (TMX) reported decent quarterly performance, with consolidated revenue growth of 16.8% YoY and EBITDA margin expanding 104bps YoY, owing to normalizing commodity prices and better Chemical segment margins (EBIT margin 16.3% vs 3.7% in Q1FY23). Domestic enquiry pipeline, continues to remain healthy for medium size order from food & Beverages, Chemicals, metals etc. while management remain pessimistic on large order in near term. Exports enquiry pipeline continues to remains strong from segments such as Waste Heat Recovery, Waste to Energy and Biomass. Indonesian subsidiary is likely to underperform in near term due to cost overrun in few projects, while Danstoker subsidiary is likely to witness gradual improvement with execution of better margins orders.

We believe, TMX is well placed to gain from increasing thrust on energy transition & de-carbonization initiatives led by its 1) technical expertise, 2) strong balance sheet and 3) prudent working capital management. Stock is currently trading at PE of 50.3x/42.8x FY24/25E. We maintain our TP at Rs2,613, valuing it at PE of 43xFY25E (same as earlier) and change rating to ‘Hold’ from Buy given the recent sharp run up in stock price.

Healthy sales and higher other income drives PAT growth of ~69% YoY: Consol. sales grew 16.8% YoY to Rs19.3bn (PLe ~Rs18.6bn), driven by growth across segment. Industrial products grew 26.1% YoY to Rs8.4bn, Industrial Infra grew 13.4% YoY to Rs9.2bn, Green Solutions grew 93.8% YoY to Rs1.1bn and Chemicals grew 7.1% YoY to Rs1.6bn. Gross margin expanded 293bps YoY to 44.3%, on a low base in Q1FY23. EBITDA grew 37.7% YoY Rs1.3bn, (PLe ~Rs1.5bn) with EBITDA margins expanding by 104bps YoY to 6.8%, partly impacted due to higher other expenses (up 25.4% YoY). During the quarter company reported exceptional expenses of Rs506mn towards provision related to litigation by customer. Adj. PAT grew 68.6% YoY to Rs994mn (PLe ~Rs1bn), due to higher other income (up ~158% YoY to Rs531mn).

Strong order book of Rs105bn: Order inflow came in at Rs25.7bn up 11.1% YoY, mainly driven by base order inflows. Order book stands strong at Rs105bn (1.3x TTM revenue), comprising of Industrial Infra (61%), Industrial Product (32%) and Green Solution (Rs6%). Near term outlook for large order from O&G segment remains muted, while confident in medium to long run. Distillery, witnessing some slowdown due to FCI decision on ban on rice towards ethanol production.

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