Thermax (TMX) recorded strong execution during Q4FY10 with revenue growth of 28.6% the year-on-year (YoY), at Rs 12.2 bn, in line with our estimate. The quarter-on-quarter (QoQ) growth was stronger at 62.9%, led by robust growth in energy as well as environment segments. Energy (72% of revenues) grew 18.9% YoY, while environment (28% of revenues) grew 71.9% YoY during the quarter. Ebitda margin, at 12%, was down 203bps YoY due to higher project sales in the revenue mix in Q4FY10 with increases in raw material (up 187 bps YoY) and employee costs (up 65 bps YoY).
Ebitda during the quarter stood at Rs 1.5 bn, a 10% growth YoY. At Rs 992 m, adjusted PAT grew 6.7% YoY during Q4FY10. The PAT is adjusted for one-time exceptional item towards the out-of-court settlement with the US based Purolite International, with no additional obligation / liability on TMX, going forward.
TMX?s order accretion for FY10, at Rs 58.0 bn, was significantly ahead of the management?s guidance at the beginning of FY10. Consolidated order backlog at the end of Q4FY10 increased 95%, to Rs 60 bn. The company entered into two JVs during the year. JVs are with SPX Netherlands BV for air pollution control equipment and the other one with Babcock & Wilcox, the US to manufacture supercritical boilers.
While we expect TMX?s execution to remain strong on the back of robust order backlog, we have increased the execution period as there are several large projects in the current order book. Also, given the strong order accretion during Q4FY10, we have trimmed the growth in order accretion for FY11E and FY12E. With this, our revenue estimate is reduced by 2.9% and 9.8%, while earnings are trimmed by 3.3% and 9.9%, for FY11E and FY12E, respectively.
We remain positive on TMX, with industrial revival in sight, besides a strong order backlog from the energy vertical. Historically, the stock has traded at one year forward P/E band between 15x and 20x. On our revised EPS estimate of Rs 29.7 and Rs 35.2, the stock is trading at P/E of 22.7x and 19.2x FY11E and FY12E, respectively. We maintain ?Buy? on the stock and rate it ?sector outperformer? on relative return basis.
We believe TMX?s long-term story remains strong, driven by investments in corporate capex and captive power and power generation in India. We believe scale up in the utility range boilers is likely to improve revenue visibility and valuations of TMX over the long term. Further the scalability of the business model is likely to improve significantly with the foray in the utility boiler segment.