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'Underweight' rating on Thermax Ltd, target price Rs 512: Barclays

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Earnings performance has remained weak for Thermax Ltd, even in the third quarter of FY14. (AP) Earnings performance has remained weak for Thermax Ltd, even in the third quarter of FY14. (AP)
SummaryEarnings performance has remained weak for Thermax, even in the third quarter of FY14...

Earnings performance has remained weak for Thermax Ltd, even in the third quarter of FY14, with PAT of Rs 66.6 crore, -13% y-o-y. This was led by a marginal decline in sales and more than a 170 bps fall in Ebitda margins.

The fall in margin was attributed to issues with orders in the environment (water) segment. Subsidiaries reported an overall loss of Rs 3.6 crore in the third quarter due to continued losses at its EPC subsidiary — Thermax Instrumentation, TBWE JV and the subsidiary in China.

According to management, the HC order on Mundra SEZ may hit Q4 revenue by Rs 50-100 crore. We maintain ‘underweight’ rating and target price of Rs 512.

Order inflow on the standalone business was stable at Rs 1,360 crore, +6% y-o-y, with growth across all regular conventional segments (air pollution, cooling, chemicals and water) except the heating segment. There was no domestic captive power and EPC order win in the quarter. Management highlighted there is no BTG order in the pipeline.

Overall, the subsidiaries reported a loss of Rs 3.6 crore, led by losses at Thermax Instrumentation and the Chinese subsidiary. Danstoker was profitable, while TBWE JV continued to make losses, with a Rs 12-crore loss in Q3.

Management also highlighted that a part of the large petro chemical order will be executed at the TBWE JV facility. Environmental segment profitability was impacted by losses in the water segment and a decline in profit in the air pollution segment. A few medium-to-large-size orders have been delayed, leading to higher costs that have been booked in the current quarter.

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