A challenging macro-environment is likely to impact near-term prospects for Thermax, according to the brokerage.
ICICI Securities has given a hold rating to Thermax Ltd, with a target price of Rs 772. The share price moved up by 0.60 per cent from its previous close of Rs 739.95. The stock’s last traded price is Rs 744.40.
Thermax reported weak execution in Q4FYFY20 in line with the brokerage expectations while margins were impacted by higher warranty provision and forex loss. Cashflow was healthy due to reduction in other current assets post completion of the large Dangote order. European subsidiary Danstoker continued to be in loss though there are certain green shoots of revival. Indonesian facility losses reduced during FY20.
Investment Rationale
A challenging macro-environment is likely to impact near-term prospects for Thermax, according to the brokerage. The company’s larger dependence on the private sector capex puts it on a backfoot versus its peers. Thermax is focused on cash flow and control over working capital. Hence it will be able to sail through these turbulent times with no major increase in debt or dilution.
Given the depressed earnings of FY21E, the brokerage rolls forward its valuation to FY22E. The stock is trading at 29.1 times FY22E earnings and given the near to medium term growth challenges, it maintains hold on the stock with a revised target price of Rs 772 (previously Rs 675). Improvement in gross margins, turnaround in overseas subsidiaries and large order finalisations will be the key rerating catalysts for the stock.
Earnings Revision (Consolidated)
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1322.96 crore, down -6.18 per cent from last quarter sales of Rs 1410.05 crore and down -36.20 per cent from last year's same quarter sales of Rs 2073.67 crore. The company reported net profit after tax of Rs 39.03 crore in the latest quarter. Promoter/FII Holdings
Promoters held 61.98 per cent stake in the company as of March 31, 2020, while FIIs held 7.77 per cent, DIIs 17.48 per cent and public & others 12.67 per cent.
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