THERMAX LTD Result Update: Q2 FY 12 C.M.P : Rs.492.00 Target Price : Rs.556.00 Date : 03 rd Nov 2011 BUY Stock Data: Sector: Capital Goods Face Value Rs. Rs.2.00 52 wk. High/Low (Rs.) 926.90/407.05 Volume (2 wk. Avg.) 26000 BSE Code 500411 Market Cap (Rs.In mn) 58624.26 Share Holding Pattern 1 Year Comparative Graph Thermax Ltd BSE SENSEX SYNOPSIS Incorporated in 1980, Thermax Ltd. is an INR 4,935 crore (USD 1.11 Billion) company, providing a range of engineering solutions to the energy and environment sectors. The Company has partnered with USbased Amonix to bring proven, CPV technology for clean power generation to India. The Company offers wide range of products and services in heating, cooling, waste heat recovery, captive power, water treatment, recycling and waste management. Net Sales and PAT of the company are expected to grow at a CAGR of 30% and 26% over 2010 to 2013E respectively. The Company has entered into technology transfer license agreement with German engineering company. During the quarter, the company has reported Net Profit increased to Rs.1016.88 million from Rs.895.26 million in previous year same quarter. Years Net sales EBITDA Net Profit EPS P/E FY 11 48832.34 6183.45 3824.18 32.09 15.33 FY 12E 60552.10 7261.70 4546.14 38.15 12.90 FY 13E 69634.92 8181.63 5133.82 43.09 11.42 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Thermax 492.00 58624.26 32.09 15.33 4.54 450.00 BGR Energy 336.70 24296.8 43.50 7.74 2.56 100.00 Kalpataru Power 108.10 16589.1 11.74 9.21 1.04 75.00 Crompton Greav 141.95 91059.7 9.90 14.34 3.98 110.00 Investment Highlights Q2 FY12 Results Update Thermax Ltd disclosed results for the quarter ended Sep 2011. Net sales for the quarter moved up 19% to Rs.13034.79 million as compared to Rs.10916.21 million during the corresponding quarter last year. Total Income has increased from Rs 11049.50 million for the quarter ended Sep 30, 2010 to Rs 13242.74 million for the quarter ended Sep 30, 2011. During the quarter, the company has reported Net Profit increased to Rs.1016.88 million from Rs.895.26 million in previous year same quarter. The Basic EPS of the company stood at Rs.8.53 for the quarter ended Sep 2011. Quarterly Results - Standalone (Rs in mn) As At Sep-11 Sep-10 %change Net sales 13034.79 10916.21 19 PAT 1016.88 895.26 14 Basic EPS 8.53 7.51 14 2
Basic EPS of the company stood at Rs. 8.53 3
Break up of Expenditure Expenditure for the quarter stood at Rs.11629.98mn, which is around 21% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 68% of the sales of the company and stood at Rs.8838.20mn from Rs.7185.47mn of the corresponding period of the previous year. Other Expenditure cost increased 25%YoY to Rs.1513.71mn from Rs.1208.39mn and accounts for 12% of the revenue of the company for the quarter. OPM and NPM for the quarter stood at 12% and 8% respectively from 13% and 8% respectively of the same period of the last year. 4
FY11 Performance Net profit of the company has increased at 170% yoy Rs.3824.18mn from Rs.1414.38mn of same period of last year. Total revenue for the year stood at Rs.48832.34 mn from Rs.31854.69 which is 53% increased than that of a year ago. EPS for the year stood at Rs.32.09 per equity share of Rs.2.00 each. Operating profit of the company stood at Rs.6183.45mn. OPM for the year stood at 12.66%. Expenditure of the company increased 54% YoY to Rs.43171.47 mn. Interest expenses for the year stood at Rs.21.84mn. Thermax ties up with US-based Amonix Thermax has partnered with US-based Amonix to bring proven, CPV technology for clean power generation to India. In this exclusive partnership, Amonix will offer high-performance solar power generation systems and the Thermax will be the engineering, procurement and construction (EPC) partner to provide turnkey solutions to customers in India. Payment of Dividend Thermax Ltd has approved payment of dividend of Rs. 9 per equity share (450%) of face value Rs. 2 each for the year 2010-11. 5
Company Profile Incorporated in 1980, Thermax offers engineering solutions to various industries. Thermax Limited, a Rs. 3300 crore energy and environment solutions provider, is one of the few companies in the World that offers integrated, innovative solutions in the areas of heating cooling, power, water and waste management, air pollution control and chemicals. The sustainable solutions that Thermax develops for client companies are environment-friendly and enable efficient deployment of energy and waste resources. Thermax has a well established technology research and development facility. The company has 120 patents, 82 national and 16 international trademarks to its credit. Over the years, Thernax has had technology partnerships and alliances with at over 40 global organizations. Products and services Boilers and Heaters It manufactures boilers and heaters according to the industry requirements such as hot water generators, steam boilers, thermal oil heaters, exhaust gas boilers, fired heaters are among others. Absorption cooling It manufactures vapour absorption machine that are cost effective chillers. The product portfolio consists of steam driven chillers, hot water driven chillers, multi energy driven chillers, etc. Chemicals It manufactures Tulsion a range of ion exchange resins. Water and Waste Solutions It manufactures a wide range of products such as clarifiers, filters, Deionizers, etc. 6
Captive power plants This division offers captive power and cogeneration systems. It also provides products to control air pollution. Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in million) FY10A FY11A FY12E FY13E 12m 12m 12m 12m Description Net Sales 31854.69 48832.34 60552.10 69634.92 Other Income 497.62 522.58 600.97 661.06 Total Income 32352.31 49354.92 61153.07 70295.98 Expenditure -28013.6-43171.47-53891.37-62114.35 Operating Profit 4338.71 6183.45 7261.70 8181.63 Interest -15.16-21.84-30.14-36.17 Gross Profit 4323.55 6161.61 7231.56 8145.47 Depreciation -404.19-431.92-466.47-494.46 Profit before Tax 3919.36 5729.69 6765.09 7651.01 Tax -1356.39-1905.51-2218.95-2517.18 Profit after Tax 2562.97 3824.18 4546.14 5133.82 Extraordinary Items -1148.59 0.00 0.00 0.00 Net profit 1414.38 3824.18 4546.14 5133.82 Equity Capital 238.31 238.31 238.31 238.31 Reserves 10269.63 12685.09 17231.23 22365.05 Face Value(Rs.) 2.00 2.00 2.00 2.00 EPS 11.87 32.09 38.15 43.09 *A=Actual, *E=Estimated 7
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in million) 30-Mar-11 30-Jun-11 30-Sep-11 30-Dec-11 3m(A) 3m(A) 3m(A) 3m(E) Description Net Sales 17713.35 10444.19 13034.79 14598.96 Other Income 132.58 147.42 207.95 195.47 Total Income 17845.93 10591.61 13242.74 14794.44 Expenditure -15762.04-9307.25-11629.98-12993.08 Operating Profit 2083.89 1284.36 1612.76 1801.36 Interest -9.66-3.77-11.04-8.89 Gross Profit 2074.23 1280.59 1601.72 1792.47 Depreciation -115.57-110.89-117.18-119.52 Exceptional Items 0.00 0.00 0.00 0.00 Profit before Tax 1958.66 1169.70 1484.54 1672.95 Tax -693.64-370.89-467.66-542.04 Profit after Tax 1265.02 798.81 1016.88 1130.91 Extraordinary Items 0.00 0.00 0.00 0.00 Net Profit 1,265.02 798.81 1,016.88 1,130.91 Equity Capital 238.31 238.31 238.31 238.31 Face Value(Rs.) 2.00 2.00 2.00 2.00 EPS 10.62 6.70 8.53 9.49 *A=Actual, *E=Estimated 8
Key Ratio Particulars FY10 FY11 FY12E FY13E EPS (Rs.) 11.87 32.09 38.15 43.09 EBITDA Margin (%) 13.62% 12.66% 11.99% 11.75% PAT Margin (%) 8.05% 7.83% 7.51% 7.37% P/E Ratio (x) 74.52 15.33 12.90 11.42 ROE (%) 24.39% 29.59% 26.02% 22.71% ROCE (%) 37.44% 42.91% 37.81% 33.23% EV/EBITDA (x) 24.29 9.48 8.07 7.17 Debt-Equity Ratio 0.00 0.04 0.03 0.02 Book Value (Rs.) 88.19 108.46 146.61 189.70 P/BV 10.03 4.54 3.36 2.59 Charts: 9
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Outlook and Conclusion At the current market price of Rs.492.00, the stock is trading at 12.90 x FY12E and 11.42 x FY13E respectively. Price to Book Value of the stock is expected to be at 3.36 x and 2.59 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.38.15 and Rs.43.09 respectively. The Company has bagged Rs 4.03 billion order from India`s largest producer of viscose staple fibre to construct and commission a turnkey captive power plant in western India. The Company has partnered with US-based Amonix to bring proven, CPV technology for clean power generation to India. Net Sales and PAT of the company are expected to grow at a CAGR of 30% and 26% over 2010 to 2013E respectively. Thermax has entered into technology transfer license agreement with German engineering company. During the quarter, the company has reported Net Profit increased to Rs.1016.88 million from Rs.895.26 million in previous year same quarter. 12
On the basis of EV/EBITDA, the stock trades at 8.07 x for FY12E and 7.17 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.556.00 for Medium to Long term investment. Industry Overview Engineering Sector: Market & Opportunities Engineering sector Heavy Engineering Light engineering Transport Capital goods Other machinery/ Equipment Low-tech items like castings, forgings and Fasteners Highly sophisticated Microprocessor-based Process control India's engineering industry is highly competitive with a number of players in each segment. The engineering sector has been growing, driven by growth in end user 13
industries and the new projects being taken up in the power, railways, infrastructure development, and private sector investments fields amongst others. The industry attracted FDI inflows of US$ 1,196.7 million from August 1991-July 2006 India's exports of engineering goods are valued at US$ 27 billion during 2006-07 which represents a 6 per cent growth over the exports for 2005-06 (US$ 20 billion). The engineering sector accounted for 14 per cent of the country's total exports. It is also noteworthy that 40 per cent of India's engineering export is from the small and medium enterprises (SME) sector. According to Engineering Exports Promotion Council (EEPC), engineering exports could touch US$ 30 billion by 2008-09. In such a scenario, India, driven by the engineering sector, will emerge as a key global manufacturing hub Industry demand is driven by investments in core sectors The demand from this sector depends largely on GDP growth, which in turn is a function of expenditure in core segments like power, railways, and infrastructure development, private sector investments, and the speed at which projects are implemented. The power sector is the largest contributor to the revenues of engineering companies. Engineering majors like Bharat Heavy Electricals Limited (BHEL) and ABB Limited derive a significant chunk of their revenues (69 per cent and 60 per cent, respectively) through the supply of equipment to the power sector. Infrastructure is another key area of operation. Larsen & Toubro Limited, for example, garners around 35 per cent of its sales from infrastructure activities like engineering, design and construction of industrial projects, social and physical projects like housing, hospitals, information technology (IT) parks, expressways, bridges, ports, and water/effluent treatment projects. The industrial segment contributes to around 30 per cent of the total revenues of the engineering sector. While India s engineering industry has capabilities in manufacturing the range of machinery required by the different user sectors, the rapid rise in demand has led to a large part of the machinery requirements being met through imports. This indicates the size of opportunity for investment in the engineering and capital goods sector in India. The 14
engineering industry has attracted FDI inflows of US$ 1,196.73 million from August 1991-July 2006. Indian Engineering goods are gaining acceptance in overseas markets India s exports of engineering goods are valued at US$ 27 billion during 2006-07 which represents a 36 per cent growth over the exports for 2005-06 US$ 20 billion). The engineering sector accounted for 14 per cent of the country s total exports. It is also noteworthy that 40 per cent of India s engineering export is from the small and medium enterprises (SME) sector. A key driver for increased engineering exports is the trend towards shifting of global manufacturing bases to countries like India that offer lower costs and good engineering talent. This trend is expected to continue and boost exports of engineering goods from India over the next 5 years. According to Engineering Exports Promotion Council (EEPC), engineering exports could touch US$ 30 billion by 2008-09. In such a scenario, India, driven by the engineering sector, will emerge as a key global manufacturing hub. The nature of Indian engineering exports is also changing with time. India is fast moving from exporting low value goods to developing countries to more sophisticated goods targeted at developed countries. Capital goods account for 27 per cent of total engineering exports. Exports to European Union countries and North America accounted for 19 per cent and 17 per cent respectively, of total engineering exports in 2005-06. Engineering goods worth US$ 3.34 billion were exported to USA alone in April Feb 2006-07 Growing Demand Capacity creation and transformation in sectors such as infrastructure, power, mining, oil & gas, refinery, steel, automotive, consumer durables are driving growth in the engineering industry. The framework below captures some of the key factors that are contributing to domestic and international demand for engineering goods from India. Restructuring of the state electricity boards in different states, growth of private sector players and focus on capacity creation have driven growth in the power sector. 15
Conclusion The Engineering sector s future outlook is promising. Drivers like power projects, other infrastructure development activities, industrial growth and favorable policy regulations will drive growth in manufacturing. The Indian engineering industry has been witnessing significant level of capability enhancement over the years. As export markets open up, this will help India develop a strong presence in global engineering exports. Power sector contributes the largest to the engineering companies revenues. Major players in this sector like ABB and BHEL derive 60 per cent and 69 per cent of their revenues from supplying equipments to the power sector. Going forward, with the Government clearing the blueprint for adding 100,000 MW in the tenth (2002-07) and eleventh 2007-12) five-year plans, the potential are high for the engineering majors. Emerging trends such as outsourcing of engineering services can provide new opportunities for quantum growth. Engineering and design services such as new product designing, product improvement, maintenance and designing manufacturing systems are increasingly getting outsourced to countries like India and China. India s engineering sector has significant potential for future growth, in manufacturing as well as services. With development in associated sectors like automotive, one of the largest evolving markets for engineering and industrial goods, and a well developed technical human resources pool, India is poised to make significant strides in all segments of engineering. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 16
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