Thermax’s (TMX) operating performance in Q4FY17 at standalone level was ahead of expectations. Sales grew by a muted 4% y-o-y to Rs 13.4b, est. of Rs 12.8b. EBITDA increased robustly by 23% y-o-y to Rs 1.5b est. of Rs 1.2b, led by cost rationalisation and higher share of service income, with the margin expanding 170bp y-o-y to 11.3% (est. of 9.6%). Adj. net profit was flat y-o-y at Rs 1.2b (est. of Rs 1.1b). Thermax booked an impairment loss of Rs 1.3b in its JV (TBW) and two subsidiaries (Chinese sub and First Energy), given the bleak business scenario. Of the Rs 1.3b, TMX booked impairment loss of Rs 1.1b in its supercritical boiler JV TBW, given the weak outlook for thermal power equipment demand globally and in the domestic market. TBW recorded revenue of Rs 2.9b and recurring net loss of Rs 0.1b. At consolidated level, TMX booked loss of Rs 0.6b for TBW JV for its fixed asset impairment. We marginally raise EPS for FY18E/19E by 8/3% to factor in margin improvement led by cost rationalisation. We, however, maintain ‘sell’ with a revised TP of Rs 850 (25x FY19E EPS of Rs 34, based on last 10-year average P/E multiple), given the weak business outlook and rich valuations.Key risk to our rating is a sharper-than-expected pick-up in industrial and power segments. Thermax’s operating performance in Q4FY17 at the standalone level was ahead of expectations.
Sales registered muted growth of 4% y-o-y to Rs 13.4bn, est. of Rs 12.8bn, EBITDA registered robust growth of 23% y-o-y at Rs 1.5bn, est. of Rs 1.2bn, led by cost rationalisation measures and higher share of service income, EBITDA margin expanded 170bp y-o-y to 11.3% (est. of 9.6%) and adjusted net profit stood flat y-o-y at Rs 1.2b (est. of Rs 1.1b). On standalone basis, Energy segment reported revenue increase of 3% y-o-y, led by weak order backlog available for execution and weak execution of the orders in the core sector on account of demonetisation impacting the supply chain. Environment business reported robust revenue growth of 21% y-o-y. EBIDTA margin during the quarter improved by 170bps y-o-y to 11.3% despite muted revenue growth of 3% y-o-y led by multiple cost rationalisation initiatives taken by the company, Rs 350m savings, and higher share of service income.