IndiaEquityResearch

Engineering

February04,2013

Thermax

HOLD
TargetPrice(INR)

564

Revenuedecelerates,orderinflowssteady

RATING TMXs order inflow in the Dec12 quarter mostly maintained the
1HFY13runrateandwasaidedbyalargeINR5bnEPCorder.Execution
LastPrice(INR)
582.5
disappointedinthequarter,leadingtoincreasedrevenuedeceleration
Bloombergcode
TMXIN
at 18% for the Dec12 quarter. Some of environment segments
Reuterscode
THMX.BO
productscontinuetofaceintensepricingpressures,leadingtoadrag
Avg.Vol.(3m)
67,522
40.5
Avg.Val.(3m)(INRmn)
on the EBITDA margin. A slowerthanestimated incremental order
691/402
52wkH/L(INR)
inflow pickup poses a rising risk to our 10% revenue growth forecast
19,781
Sensex
forFY14f.TheFY13fFY15frevenueiscutbyupto2%andEPSbyupto
MCAP(INRbn/USDbn)
69.40/1.30
5%. We rollover our TP to Dec13 and raise it marginally to INR564
basedon15xP/E.MaintainHold.
Shareholding(%)
09/12
12/12
Promoters

62.0

62.0

MFs,FIs,Banks

10.3

10.5

Revenuedecelerationrelatedtopastlowinflows;marginssustain

FIIs

13.6

13.6

Public
Others

12.6
1.6

12.4
1.5

Revenuedeclined18%yoyintheDec12quartercomparedtotheTTMdecline
of 4% until the Sep12 quarter. Revenue deceleration increased due to low
inflows in the past year and a 24% decline in the order backlog, as at Sep12.
EBITDA margins were flat yoy, as a large fall in the environment segments
marginswasnegatedbytheenergysegmentshighermargins.Intensepricing
pressures in some of environment segments products such as air pollution
controlequipmentcontinuedtopulldownthesegmentsmargins.

StockChart(RelativetoSensex)
650
600

BTBrisingonsteadyinflows;cutEPSbyupto5%onlowerexecution

550
500
450
400

Feb12

Jun12

Oct12

Thermax

Jan13

Sensex Rebased

StockPerfm.(%)

1m

3m

1yr

Absolute

4.8

0.1

19.5

Rel.toSensex

5.8

6.5

5.2

Financials(INRmn)

03/12

03/13f

03/14f

Sales

53,041

47,213

51,923

11

10

11.0

10.7

10.8
3,886

YoY(%)
EBITDA(%)

4,069

3,603

Sho/s(diluted)

119

119

119

A.EPS(INR)

34.1

30.2

32.6

11

D/E(x)

0.4

0.4

0.4

P/E(x)

17.1

19.3

17.9

EV/E(x)

10.9

12.3

10.8

26
28

19
21

19
20

A.PAT

YoY(%)

RoCE(%)
RoE(%)

TMXmissedoutonbookinganymidsizedprojectordersinthecaptivepower
segment.Yet,theorderinflowintheDec12quarterwassustainedaroundthe
1HFY13inflowrunrate.TheBTBratiohasbottomedoutonsteadyinflowrate
andwhichislikelytoimprovetherevenuegrowthgoingforward.However,We
cuttheFY13fFY15frevenuebyupto2%andEPSbyupto5%onalargerthan
expecteddecelerationinexecutionintheDec12quarter.ItsboilerJVislikelyto
burn cash of cINR0.8bn in FY14f without any orders to work on; this is not
factoredinourstandaloneforecast.

MaintainHold;TPofINR564;riskstorevenuearehigh
We have forecast a 10% revenue growth in FY14f, assuming incremental
improvement in inflows and execution. However, a slow increase in base
ordersmayleadtothecurrentrevenuedecelerationextendingwellintoFY14f
and raise the risks to our revenue forecast. The target P/E is retained at 15x
and implies a PEG of 1.1x to our forecast twoyear EPS CAGR of 14%. We
rollover our TP to Dec13 and increase it to INR564 (from INR557) based on
Dec14fEPSfoINR37.6.MaintaintheHoldrating.Alowerthanforecastorder
inflowsandcontinuingintensecompetitionarethekeyriskfactors.
Exhibit1: Earningsrevisionsummary(standalone)
(INRbn)
Revenue
EBITDA
PAT
EPS(INR)

FY13f
Old
New Chg(%)
48.4
47.2
3
5.3
5.1
4
5.5
5.4
2
30.9
30.2
2

QuarterlyTrends

03/12

06/12

09/12

12/12

Source:Company,AvendusResearch

Sales(INRmn)

16,868

9,835

11,924

10,468

PAT(INRmn)

1,298

738

911

764

Pleaserefertothedisclaimertowardstheendofthedocument.

DevangPatel,+9102266842861
devang.patel@avendus.com

FY14f
Old
New Chg(%)
53.7
51.9
3
5.9
5.6
5
6.2
5.9
5
34.2
32.6
5

FY15f
Old
New Chg(%)
63.4
62.7
1
7.0
6.8
3
7.2
7.1
2
40.2
39.3
2

India Equity Research

Thermax

Exhibit2: Resultsnapshotforthequarter
(INRmn)
Totaloperatingincome
Totaloperatingexpenses
EBITDA
Otherincome
Depreciation
EBIT
Interest
RecurringPBT
Netextraordinaryitems
PBT(reported)
Tax
PAT(reported)
(+)Shareinassoc.earnings
Less:Minorityinterest
Priorperioditems
Avendusnetincome
AvendusEPS(INR)
Ratios(%)
EBITDAmargin
EBITmargin
Effectivetaxrate
Netprofitmargin

Dec11

Sep12

Qoq(%)

Dec12

Yoy(%)

12,693
11,329
1,364
157
120
1,401
17
1,385
0
1,385
429
955

955
8.0

11,924
10,706
1,217
274
139
1,352
34
1,318

1,318
407
911

911
7.6

12
13
8
55
4
18
43
17

18
17
18
21
11
21
18
21

10.7
11.0
31.0
7.5

10.2
11.3
30.9
7.6

10,468
9,350
1,119
124
133
1,110
20
1,090
0
1,090
326
764

764
6.4

10.7
10.6
29.9
7.3

17
20
16

16
16

21
24
20

20
20

Source:Company,AvendusResearch

Exhibit3: Financialsandvaluationsstandalone

Incomestatement(INRmn)
Fiscalyearending
Operatingincome
EBITDA
Otherincome
Depreciation
EBIT
Interest
Netextraordinaryitems
PBT(reported)
Totaltaxes
PAT(reported)
(+)Shareinassoc.earnings
Less:Minorityinterest
Priorperioditems
Netincome(reported)
Avendusnetincome
Avendusdil.shares(mn)
AvendusEPS(INR)

03/12
53,041
5,839
705
470
6,075
66

6,009
1,940
4,069

4,069
4,069
119.2
34.1

Balancesheet(INRmn)
03/13f
47,213
5,073
798
518
5,352
131

5,221
1,619
3,603

3,603
3,603
119.2
30.2

03/14f
51,923
5,592
859
572
5,879
164

5,715
1,829
3,886

3,886
3,886
119.2
32.6

03/15f
62,725
6,756
943
643
7,057
172

6,885
2,203
4,682

4,682
4,682
119.2
39.3

Fiscalyearending
Networth
Minorityinterest
Totaldebt
Deferredtaxliability
Totalliabilities
Netblock
CWIP
Goodwill
Investments
Cash
Inventories
Debtors
Loansandadvances
less:Currentliabilities
less:Provisions
Networkingcapital
Totalassets

Cashflowstatement(INRmn)

KeyRatios(%)

Netprofit+Depreciation
Deferredtax
Workingcapitalchanges
Less:Otherincome
Cashflowfromoperations
Capitalexpenditure
Others
Cashflowfrominvesting
Equityraised
Changeinborrowings
Dividendspaid(incl.tax)
Others
Cashflowfromfinancing
Netchangeincash

P/E(onAvendusEPS)(x)
P/BV(x)
EV/Sales(x)
EV/EBITDA(x)
ROCE
ROE
EBITDAmargin
Netprofitmargin
Operatingincomeyoy
AvendusEPSyoy
Grossassetturnover(x)
Workingcapitalcycle(days)
Netdebttoequity(x)
NetdebttoEBITDA(x)

4,538
4,121
4,459
5,325
29
36
45
56
3,113
108
53
328
705
798
859
943
748
3,251
3,591
4,765
997
708
1,038
1,254
778
75
859
943
1,775
783
179
311

1,184
0
0
0
969
1,255
1,394
1,673
56
0
0
0
159
1,255
1,394
1,673
868
1,214
2,018
2,782

03/12
03/13f
03/14f
03/15f
16,012
18,360
20,852
23,861

1,664
1,664
1,664
1,664
230
265
310
366
17,906
20,290
22,827
25,891
5,316
5,506
5,972
6,584
420
420
420
420

5,527 6,399 6,399 6,399

5,698
6,911
8,929
11,710
6,300
6,168
6,614
7,790
12,456
12,197
13,078
15,404
3,981
3,814
4,113
4,872
19,334
18,383
19,816
24,127
2,457
2,743
2,882
3,161
6,643
7,965
10,036
12,489
17,906
20,290
22,827
25,891
17.1
4.3
1.2
10.9
26.1
28.1
11.0
7.6
8.6
6.4
6.6
4.2
0.4
0.3

19.3
3.8
1.3
12.3
19.3
21.0
10.7
7.5
11.0
11.5
5.4
7.7
0.4
0.3

17.9
3.3
1.2
10.8
18.5
19.8
10.8
7.4
10.0
7.9
5.3
7.6
0.4
0.3

14.8
2.9
0.9
8.5
19.7
20.9
10.8
7.4
20.8
20.5
5.7
5.5
0.5
0.2

Source:Company,Bloomberg,AvendusResearch

Engineering

India Equity Research

Thermax

Exhibit4: OneyearforwardP/Ebasedonconsensusestimates(x) Exhibit5: PremiumtoSensexandBHELconsensusP/E(%)

PE

TargetP/E

P/E(2yr)

PremiumtoSensex

PremiumtoBHEL

120

32

80
24

40
16
15.0x
8

40

Apr09

Mar10

Feb11

Feb12

Jan13

Dec13

80
Apr09

Jan10

Oct10

Jul11

Apr12

Jan13

Source:Company,Bloomberg,AvendusResearch

Source:Company,Bloomberg,AvendusResearch

Exhibit6: AverageP/EandP/BanddiscounttoSensexandBHEL

TMXP/E(x)
Prem.ToSensex(%)
Prem.ToBHEL(%)

TMXP/B(x)
Prem.ToBHEL(%)

Average
Current

3month

6month

1year

3year

18.6
17.9

19.2
25.4

18.4
24.2

16.7
16.4

18.0
14.2

87.4

93.1

90.4

76.5

28.0

3.3

3.4

3.3

3.2

4.4

97.7

98.5

88.8

69.0

23.3

Source:Company,Bloomberg,AvendusResearch

OurtargetP/EforTMXsetatof15xinOct12wasbasedona50%premiumoverourtargetP/Eof10x
for BHEL (BHEL IN, Reduce). It implies a reduction in TMX P/E and its premium from the past six
month average of 90%. TMXs current oneyear forward P/E is higher due to the current earnings
declineandtheP/Eislikelytomoderateonceearningsrecover.
Exhibit7: Segmentresultsnapshotforthequarter
(INRmn)

Dec11

Segmentrevenue
Energy
Environment
Unallocated
Totalrevenue
Segmentmargins(%)
Energy
Environment
EBIT/Sales
Capitalemployed
Energy
Environment
Unallocated
Totalcapitalemployed

Sep12

9,931
3,024
262
12,693

9,345
2,751
172
11,924

9.5
13.0
11.0

9.9
9.6
11.3

3,906
2,111
9,554
15,571

3,864
2,537
11,417
17,819

Qoq(%)
14
5
12
12

54
8
9
7

Dec12

7,993
2,627
151
10,468

10.8
10.1
10.6

5,933
2,733
10,345
19,011

Yoy(%)
20
13
42
18

52
29
8
22

Source:Company,AvendusResearch

Engineering

India Equity Research

Thermax

Exhibit9: Segmentmargintrend(%)

Exhibit8: EBITDAmarginsandrevenuegrowthtrend(%)
99

13
EBITDAmargin(LHS)

Revenueyoy

15.0
Energy

PATyoy

12

66

13.5

11

33

12.0

10

10.5

33

9
Dec10

Jun11

Dec11

Jun12

Dec12

9.0
Dec10

Environment

Jun11

Dec11

Source:Company,Bloomberg,AvendusResearch

Source:Company,Bloomberg,AvendusResearch

Exhibit10: Orderbookingtrend(INRmn)

Exhibit11: Orderbacklogtrend(INRmn)

Total

Jun12

Dec12

2.3

75,000

18,000

Orderbacklog

14,440
12,739

12,840
12,580
11,620

11,845

12,000
9,874

BTB(x,RHS)

50,000

1.7

25,000

1.1

8,090
5,900

6,000

0.5

0
Dec10

Jun11

Dec11

Source:Company,AvendusResearch

Jun12

Dec12

Dec10

Jun11

Dec11

Jun12

Dec12

Source:Company,AvendusResearch

Engineering

India Equity Research

Thermax

AnalystCertification
Thefollowinganalyst(s)is(are)primarilyresponsibleforthisreportand,certifies(y)thattheopinion(s)onthesubjectcompany(ies)anditssecurity(ies)andanyotherviewsor
forecastsexpressedhereinaccuratelyreflecttheirpersonalview(s).Theyfurthercertifythatnopartoftheircompensationwas,isorwillbedirectlyorindirectlyrelatedtothe
specificrecommendation(s)orviewscontainedinthisresearchreport:DevangPatel

Disclosures
MeaningofAvendusSecuritiesPrivateLimitedsequityresearchratings
Theratingrepresentstheexpectedchangeinthepriceofthestockoverahorizonof12months.
Buy:morethan+20%

Add:+10%to+20%

Hold:10%to+10%

Reduce:10%to20%

Sell:lessthan20%

Proportionofratingsineachcategoryandinvestmentbankingrelationships(%)
AttheendofDec2012

Buy

Add

Hold Reduce

Sell

NR

Total

Proportionofratingsineachcategory

30.3

34.2

18.4

10.5

0.0

6.6

100.0

16.67

66.67

0.00

0.00

0.00

Proportionofcompaniestowhommaterialinvestmentbankingserviceswereofferedduringtheprevious12months

16.67 100.00

Analystdisclosures
None of the analysts involved in the preparation of this research report or a member of his/her household is an officer, director or supervisory board member of any of the
company(ies)thatis/arethesubjectofthisresearchreport.Noneoftheanalystsinvolvedinthepreparationofthisresearchreportormembersofhis/herhouseholdholdany
financialinterestinthesecuritiesofthecompany(ies)thatis/arethesubjectofthisresearchreport.Noneoftheanalystsinvolvedinthepreparationofthisresearchreporthave
receivedorpurchasedsharesofthesubjectcompanypriortothepublicofferingofthoseshares.

DisclosuresonpotentialconflictsofinterestforAvendusSecuritiesPrivateLimitedand/oritsassociatecompanies(Avendus)asonFebruary01,2013.
Asontheabovementioneddate,theshareholdingsofAvendusdoesnotexceed5%ofthetotalissuedsharecapitalofThermaxLimited(TMX).Avendusdoesnotholdanyother
financialinterestinTMXthatissignificantwithregardtotheresearchrecommendation.Asontheabovementioneddate,theshareholdingsofTMXdoesnotexceed5%ofthe
totalissuedsharecapitalofAvendus.Avendusisnotamarketmakerorliquidityproviderinthesecuritiesoftherelevantissuerorinanyrelatedderivatives.Avendushasnotbeen
aleadmanagerorcoleadmanagerofapubliclydisclosedofferofsecuritiesofTMXorinanyrelatedderivativesoverthepast12months.Overthepast12months,Avendushas
not been party to an agreement with TMX with regard to the provision of other investment banking services that do not entail the disclosure of any confidential commercial
information.Avendusisnotpartytoanagreementwiththesubjectcompany(ies)ofthisresearchreportwithregardtotheproductionofthisresearchreport.

Sharepricehistoryandratingchanges
700
TMX(InitiatedonMay24,10)

Rating,Date,TP

600
Hold,03Feb,521
Hold,04Feb,564

H old,31Oct,557
500

400

Reduce,28Jul,428
Reduce,15May,366

300
Feb12

Mar12

May12

Jul12

Aug12

Oct12

Dec12

Jan13

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India Equity Research

Thermax

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