engineering share thermax

Thermax Ltd (updated 21 Mar 2010)
The company is into manufacturing of super-critical boilers should augur well for the company

Thermax and US-based Babcock & Wilcox Power signed a Rs 700crore joint venture (JV) agreement to manufacture supercritical (660 Mw and above) and sub-critical (over 300 Mw) boilers in the country. Given Thermax’s 51 per cent stake in the JV and assuming a debt-equity ratio of one, it implies an investment of Rs 175 crore by the company, which it plans to fund through internal accruals.

Thermax expects production to commence in 2012-13 and achieve annual sales of Rs 3,000 crore in five years. With this move, Thermax will join the league of Bharat Heavy Electricals Limited, L&T-Mitsubishi Industries and JSW Group-Toshiba.

While the working capital requirement in this business is likely to be higher and margins lower during the initial years, which in turn is likely to lead to lower return ratios, the growth that can accrue from this diversification may negate the downward profile of return ratios in future, suggests Edelweiss Securities. To indicate the potential, a single equipment order for 800Mw capacity (including engineering, procurement and construction work) can be upwards of Rs 3,500 crore.

Analysts expect the JV to turn profitable in 2012-13. At full capacity, Credit Suisse’ analysts estimate that the JV (for boilers and EPC) can add Rs 20-25 to Thermax’s earnings.

The foray augurs well for Thermax, as India targets to add around 170,000 Mw of generation capacity during FY2007-2017, thus creating asizeable market for equipment vendors.

Meanwhile, the company secured orders worth Rs 1,550 crore in the December 2009 quarter and is expected to end 2009-10 with an order backlog of Rs 5,900 crore, up 93 per cent over last year. This should provide a strong base to deliver robust revenue growth going ahead. While profit margins are seen stable around 12 per cent in 201011, there is a possibility of material-cost pressures rising marginally in the future.

Thermax’s stock surged 3per cent to around Rs 680 post the announcement on March 10, which translates into a P/E of 21.9 and 17.2 for 2010-11 and 2011-12, respectively, according to consensus analysts’ estimates.
Source - Business Standard

Thermax Ltd (updated - 14 May 2010)
Energy and environmental solutions provider Thermax surpassed analyst expectations due to better execution of the order book. Revenues grew 29 per cent in the March 2010 quarter over the year-ago period to Rs 1,219 crore, the highest in the last eight quarters. After reporting an average decline of 8.6 per cent in the past seven quarters, the company’s energy division, which contributes 76 per cent to revenues, saw growth of 18.8 per cent in sales due to apick-up in the execution rate.

The environment division’s revenues jumped 72 per cent in the March quarter after recording a decline of 19 per cent in the nine months of FY10. However, operating profit margins were lower by 200 basis points at 12 per cent. Core net profit at Rs 99 crore was flat, as higher other income and stable fixed costs (read interest and depreciation) were partly negated by higher tax outgo. However, a one-time payment of Rs 115 crore (net of tax) for settling apatent dispute with USbased Purolite International pushed the company into a loss of Rs 16 crore.

Analysts remain optimistic about the company, as it will be moving up the value chain by entering into the super-critical boiler market. Currently, it is a player in the small- and mediumsized boilers. It will be setting up a 3,000-Mw facility. This will get the company revenue traction, even when operating profit margins remain flat.

The order backlog of Rs 5,381 crore saw a jump of 86 per cent over the previous year, though down by a marginal 4 per cent on a quarteron-quarter basis. The execution is expected to be 60 to 70 per cent of the order book, enabling the company to sustain 30 per cent revenue growth, reckon analysts.

The premium valuation at the moment seems justified, as it has areturn on equity of 32 to 34 per cent, which is better than that of the market leader BHEL (around 30 per cent). Considering a lower base, and mid-cap stocks being the current flavour, better days are expected for Thermax.
Source - Business Standard

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Thermax: Solid order book, new JV to boost profit (updated - 22 July 2010)
Thermax’s first quarter performance proves beyond doubt that the energy & environmental engineering company is in a turnaround phase.

The company continued to report robust double-digit growth in sales and profits for the second straight quarter. The momentum is expected to remain strong in near term as well, given its healthy order book position. The rebound in its business was visible in the March 10 quarter, when the company had reported profit growth for the first time in three quarters. The pace of the growth has further accelerated in the June quarter with a 42% jump in profit backed by a 49% rise in sales. This is also its best performance in the past 10 quarters.

The growth rate is an indication that the company has managed to come out of the hangover of the five-year-old trade dispute related to patent rights. In the March quarter, the company settled the dispute involving an outgo of `174 crore. It had booked the entire amount in its financial statement in the March 2010 quarter itself. This helped it start on a clean slate and begin FY11 with impressive numbers. The company continues to face pressure on its raw material cost, which grew faster than sales growth.

However, the rise in input costs relative to sales was lower than the previous quarter by nearly 200 basis points. This indicates rationalisation of costs. Despite the pressure on raw material cost, core operating margin has improved nearly 150 basis points over last year, aided by a lower growth in employee and other costs.

The outlook looks considerably promising, especially considering the fact that the first quarter after the dispute settlement has turned out to be remarkably well. The order book has nearly doubled from the year-ago levels. The current order book is equivalent to nearly 22 months of sales providing reasonable revenue growth visibility. With most of the execution delays, arising out of general weakness of the economy, getting out of the way, the execution should not see any serious impediment now.

The company may also gain from its new joint venture (JV) with Babcock & Wilcox, the US-based company formed in the March 2010 quarter, which opens up another important business segment. Apart from the manufacture of super critical range of boilers, the JV will also manufacture a higher range of boilers. With a proposed capacity of 3,000 mw, the new facility is expected to begin production by end FY12 and add substantially to the company’s financials.

However, the energy segment saw a decline in profit before interest and tax (PBIT) margin of 100 basis points (bps) to 10.2 per cent - the lowest in the last three years -while the environment segment saw the PBIT margin stay stable at 12.5 per cent.

Thermax reported strong growth of 43 per cent in its order book at `7,260 crore om the back of `3,200-crore order inflows in H1FY11 (`1,400 in Q2FY11). The outlook is strong as the company is getting enquiries from various industries. The key feature in the second quarter was a pickup in short-cycle product orders from power cogen, cement and steel companies, which could influence nearterm earnings, said an Emkay Securities report.

The company’s plan to enter boiler manufacturing in ajoint venture with Babcock and Wilcox, to be operational by the end of financial year 2011-12, will place it in a different trajectory and improve scalability and scope of business. Given these positive developments in the pipeline, the valuation of 22 times FY12 estimated earnings look reasonable.
source - business standard

Thermax Ltd (updated - 09 Nov 2010)
Thermax recorded threeyear-high growth of 60 per cent in revenues to `1,092 crore in the July-September quarter. This was partly due to low base in the same quarter last year (a decline of 15 per cent in revenues) and strong execution of large orders in the energy segment, which saw a jump of 72 per cent in sales ( `891 crore or 78 per cent of the total sales).

Revenues from the environment segment rose 50 per cent to `248 crore. Both segments saw record sales growth. Operating profit margin and net profit margin were 12 per cent and eight per cent, respectively, despite arise in raw material costs and taxation.