Hold Thermax; target of Rs 930: JM Financial

JM Financial’s research report on Thermax

After 3 consecutive years of contraction, Thermax (TMX) reported a sharp jump in order inflows (up 45% YoY) in FY18, but management guides for a cautiously optimistic outlook amid rising interest rates and the run up to the 2019 elections. Key takeaways from TMXs FY18 annual report are: a) a cautious outlook on order inflows, to be driven largely by 2 sectors: consumer-led industries (food, beverage, textiles, tyres and automobiles) and emission norm-related capex (power and oil & gas); b) expanding its manufacturing footprint through new facilities in Indonesia, Dahej and the acquisition of assets in Poland to counter cyclicality in sales; c) margin decline being restricted to 70bps in FY18 as projects improved credit risk profiles created a 100bps swing, even as rising commodity prices and losses in the Chinese subsidiary led to pressure on gross margins, d) FCF jumping 260% YoY as advances on new orders led to a sharp fall in its NWC from 26 days to 1; and e) RoE/RoCE remaining suppressed (in single digits) due to investments in non-revenue yielding and loss-making JVs.

Outlook

We maintain HOLD with a TP of INR 930, valuing the stock at 25x FY20E EPS.

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First Published on Jul 18, 2018 04:58 pm

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