Financial Statement

Analysis
Thermax India Limited
Table of Contents
About the Company
Fund Flow Analysis
Ratio Analysis
ICE Analysis
SWOT Analysis
Conclusion
 About the company
Thermax Group is an INR 5516 crore company, providing a range of
engineering solutions to the energy and environment sectors
Product in energy sector: boilers, thermal oil heaters, energy chillers and
customized products like exhaust gas boilers.
Solutions for environment sector include: air pollution control equipment,
water and waste recycle plants.
Serves diversified industries including iron & steel, oil & gas, power
generation, cement, fertilizer, pharmaceutical, sugar, paper & pulp, and
automobile.
Has technology partnerships with global majors, including: Babcock &
Wilcox (USA), Kawasaki Thermal Engineering (Japan), Balcke Durr
(Germany), Eco-Tech (Canada) and Georgia Pacific (USA).
Focuses on Green and sustainable Energy resources
ANNUAL PERFORMANCE 2015-16
During the year, the revenue from exports, including deemed exports, was
Rs. 1,446 against Rs. 1,092 crore in the previous year. This growth was
primarily attributable to a large project order invoiced during the year.
Profit before tax at Rs. 437 crore was 9.8% of the total revenue, compared
to Rs. 497 crore, at 10.5% in the previous year.
Profit after tax stood at Rs. 306 crore compared to Rs. 336 crore in the
previous year. Earnings per share (EPS) were at Rs. 25.64 (Rs. 28.19 in FY
2014-15).
Order booking for the year was Rs. 3,701 crore against Rs. 3,951 crore last
year, registering a decrease of 6.3%. The drop is mainly on account of
lower orders in international markets. The company completed the year
with an order backlog of Rs. 3,747 crore as against Rs. 4,396 crore in the
previous year.
 Fund Flow Analysis
Individual Item wise2015-16
Particulars
Net Long Term Liabilities Fund 2014-15
234.95 Flow 115.15
2013-14
262.24
2012-13
290.11 Sub total wise Fund Flow
Net Long Term Assets 201.92 40.85 56.35 206.96 Short Term 2016 2015 2014 2013
Net Short Term Liabilities -286.88 -116.36 464.98 -133.21 Current Liabilities -286.88 -116.36 464.98 -133.21
Net Short Term Assets -253.85 -42.06 670.87 -50.06 Current Asset -253.85 -42.06 670.87 -50.06

Long Term Liabilities

Particulars 2015-16 2014-15 2013-14 2012-13 Shareholder's fund 220.3 241.83 155.72 268.09
Total Long Term Sources 289.84 287.75 371.17 299.85
Non current Liabilities 14.65 -126.68 106.52 22.02
Total Long Term Uses 256.81 213.45 165.28 216.7
Total Short Term Sources 333.73 428.23 601.11 477.72 Long Term Assets
Total Short Term Uses 366.76 502.53 807 560.87 Gross Block 21.6 30.95 134.63 68.88
Total Uses 623.57 715.98 972.28 777.57 Depreciation 45.31 62.03 48.84 45.9
Investment 192.99 12.11 68.39 42.72
Others 32.64 59.85 -97.85 141.25

Long Term Assets - Liabilities -33.03 -74.3 -205.89 -83.15 ST Sources 253.85 42.06 464.98 50.06
Short Term Assets - Liabilities 33.03 74.3 205.89 83.15 ST Uses 286.88 116.36 670.87 133.21
LT Sources 280.26 303.86 408.93 336.01
LT Uses 247.23 229.59 203.02 252.85
Long Term Sources - Uses 33.03 74.3 205.89 83.15
Short Term Sources - Uses -33.03 -74.3 -205.89 -83.15 ST Sources - Uses -33.03 -74.3 -205.89 -83.15
LT Sources - Uses 33.03 74.27 205.91 83.16
Total Uses 534.11 345.95 873.89 386.06
Criticality 6% 18% 27% 20% Criticality 6% 21% 24% 22%

There is a continuous flow of funds from Short term to Long term. However the criticality of flow has been reducing
over years. Indicates that the funds are being well managed. This also supports the fact that there is adequate
Liquidity which is evident from the various other Ratio analysis. Trend shows that there is a steep increase in
investments both current and Long term
There is also a large increase in WIP capital.
 RATIO ANALYSIS
The following slides illustrate the various ratios and interpretations.
Ratios 2012 2013 2014 2015 2016 Ratios 2012 2013 2014 2015 2016

Liquidity Ratios
Current Ratio 1.25 1.31 1.33 1.32 1.38 Activity Ratios
Quick Ratio 1.13 1.21 1.24 1.21 1.28
Cash Ratio 0.33 0.29 0.36 0.39 0.42 Short term Activity Ratios
Cash Conversion Cycle 10 21 24 33 40 Inventory Turnover Ratio (no of times) 17 17 17 15 15
Dividend Payout Ratio (NP) % 20.5 23.83 28.26 24.82 23.39 Inventory Holding period (in days) 21 21 21 25 25
Dividend Payout Ratio (CP) % 18.37 20.6 23 20.84 19.51
Earnings Retention Ratio 79.5 76.17 71.14 75.18 76.61 Receivables Turnover Ratio (no of times) 5 4 3 3 3
Cash Earnings Retention Ratio 81.63 79.4 77 79.16 80.49 Average Collection Period (in days) 75 102 117 120 131
Payables Turnover Ratio (no of times) 4 4 3 3 3
Average Payment Period (in days) 86 102 114 112 116
Profitability Ratios
PBID Margin (%) 12.16% 12.18% 10.91% 12.78% 11.63% Long term Activity Ratios
PBT Margin (%) 11.16% 10.82% 9.37% 10.94% 10.19% Fixed Assets Turnover Ratio 9.88 7.82 6.63 6.92 6.63
PAT Margin (%) 7.56% 7.35% 5.83% 7.39% 7.13% Total Assets Turnover Ratio 1.42 1.18 0.97 0.92 0.86
Capital Employed Turnover Ratio 2.06 2.75 2.23 2.12 1.80

Return on Assets (%) 10.25% 8.48% 5.21% 6.70% 6.16%

Return on Capital Employed (%) 25.41% 18.72% 12.49% 14.82% 12.28%

Return on Networth (Equity) (%) 25.41% 18.72% 12.49% 14.82% 12.28% Per Share Ratios
Earnings Per Share 34.15 29.37 21.23 28.19 25.64
Book Value Per Share 134.38 156.88 169.94 190.24 208.73
Leverage Ratios Dividend Per Share 7 7 6 7 6
Debt Equity Ratio 0.03 0.04 0.09 0.02 0.03 Revenue from Operations/Share (Rs.) 456.76 404.79 369.54 398.68 375.34
Debt to Capital Employed 0.10 0.01 0.09 0.05 0.04 PBDIT Per Share 54.92 48.69 39.74 48.75 41.83
PBT Per Share 50.43 43.27 34.15 41.71 36.67
Net Profit Per Share 34.15 29.37 21.23 28.19 25.64
RATIO ANALYSIS
Healthy Liquidity Ratios and very low Debt-Equity Ratio indicating that there
is enough funds to meet with immediate expenses
Decrease in the Inventory turnover ratio, increase in Inventory Holding period
indicate the reduction in demand.
Increase in Average collection period and Average Payment period indicate
that the procurement payment period is well aligned with the collection
period in order to ensure that current liabilities are met adequately with
current assets
All of these also suggest that there is an increase in WIP Capital as supported
by the Fund flow analysis as well.
The Cash conversion cycle time taken to realize capital employed into sales
has increased from 10 days to 40 days over the last five years
Return on Asset, Equity and Capital Employed have all been on the decline
indicating that the assets and funds are under utilized. This is directly
supported by the fact that the orders have decreased considerably over the
years.
The positive fact is that PAT margin has been consistently maintained.
 RATIO ANALYSIS LIQUIDITY RATIOS

The trend above shows that Thermax

has been steadily increasing its ability Thermaxs average current ratio over the last 5
to pay off its current debts with quick financial years has been 1.29 times which indicates
assets only. that the Company has been maintaining sufficient
cash to meet its short term obligations.
RATIO ANALYSIS PROFITABILITY Ratios

PBT trend indicates that company profits have

decreased over the last 5 year period.
RATIO ANALYSIS roi RatioS
While Thermax showed revenue decline
from 2011 to 2013, there has been a
gradual increase since then which is a
positive sign for the investors.
Return on equity measures how efficiently a firm
can use the money from shareholders to generate
profits and grow the company. ROE is a
profitability ratio from the investor's point of view
not the company. The steadily decreasing ratios
are a cause of concern.
RATIO ANALYSIS roi RatioS
Earnings Retention Ratio
82

80

78

76

74

72

70

68

66
2011 2012 2013 2014 2015

Return On Capital Employed is a ratio

Thermax has maintained consistent earnings
that shows the efficiency and profitability
retention ratio between 70-80%
of a company's capital investments. The
graph above clearly shows that company
is facing a decline in the efficient
utilization of capital.
RATIO ANALYSIS Activity Ratios

Thermax has been maintaining a steady dividend

Thermax seems to be maintaining a healthy
payout ratio above 20% which is a positive
inventory and is able to sell effectively what
indication to the shareholders.
it makes.
RATIO ANALYSIS Activity Ratios

The graph above shows Thermax has a While the total assets has been increasing, the
healthy debt-to-equity ratio and there is asset turnover ratio has been decreasing and
no need of concern in this regard. is indicative of poor utilization of assets.

Rising debt-to-equity ratio indicates that

the company is absorbing more debt than
it can handle. A red flag should be raised
if the debt-to-equity ratio is over 100%.
 RATIO ANALYSIS VALUATION Ratios
Per Share Ratios
500
450
400
350
300
250
200
150
100
50
0
2011 2012 2013 2014 2015
Ea rni ngs Per Sha re Book Va l ue Per Share
Di vi dend Per Share Revenue from Operations /Sha re (Rs .)
Enterprise value can be thought of as the PBDIT Per Share PBT Per Sha re
Net Profit Per Share
theoretical takeover price if the company
were to be bought. In spite of fall in 2015, The companys profitability has been
the steadily increasing EV is a positive declining over the years.
indication about the companys
valuation.
TREND ANALYSIS

The Other Expenses seem to be rising for

Thermax and could be a cause of concern The increase in current investments is
and need examination of the line items to clearly exhibited in the common size
conclude whether they are likely to recur. analysis for Assets
 Industry analysis qualitative
Although Thermax has been consciously diversifying into several verticals, the core business sector remains
Power and infrastructure. Following are some of the influencing factors in the industry that have a direct bearing
on the companys performance.
Declining order booking: The recent trend in the capital goods space is to build smaller projects ( 1x300MW,
2x150MW) as banks are reluctant to fund large projects
Competition intensifying in the Capital Goods space: In the recent years, the capital goods space has been
witnessing increasing competition predominantly from China, Korea and Japanese players. This could further
increase pressure in order flows.
Cyclical Business: The companys exposure in to the cement and steel and utility power all are cyclical in nature
thus making the stock a cyclical stock.
Most of the players in the power sector are operating below 60% capacity and hence under huge losses.
Increased lending rates from Public sector banks and sluggish credit growth especially in the power sector have
resulted in increased risk of payment defaults
The company faces risk in the forex front, currency has witnessed high volatility in the recent times. This could
likely add pressure to the margins of the company.
The Company continues to witness lack of skilled workforce in the sector. Demand supply gap in the workspace
could affect the operations in various areas in the domestic and international sites.
Industry analysis quantitative(1/4)
While the P/E ratio is high for the
company, all the other valuation ratios
are low compared to the industry/
sector average. Based on this, it could
be concluded that company stock is
underpriced.

Thermax has displayed negative growth

rate when compared to the peer
companies and the sector average.
Industry analysis quantitative(2/4)
The companys dividend payout is much
lower than the industry and sector
average.

While the company is low at liquidity

front, the low debt to equity ratio
indicates the company has good
financial strength and stability due to
low debt.
Industry analysis quantitative(3/4)
As compared to the peers, while the
company shows great efficiency in
inventory management and asset
utilization, it shows low employee
productivity and receivables-to-cash
conversion.

While the asset utilization is lower than

the peers, the company has done better in
terms of ROI and ROE, thus displaying
efficiency in generating profits.
Industry analysis quantitative(4/4)
The company has shown declining
profitability as compared to its peers,
over the last 5 years.
COMPETITORS (1/2)
BHEL is one of the major players in the power, oil and gas and infrastructure and has the
highest domestic market share.
In the financial year 2015-16, BHEL has had the highest order booking in the last 5 years as
against Thermax which shows drop in order booking.
Despite high order values, BHEL has reported a loss of 4% while Thermax has managed to
stay in the profit zone.
The inventory turnover ratio is as low as 3 for BHEL which means more of long term projects
are executed. Thermax executes short term projects with a turnover ratio of 17.
BHELs ROA has been consistently dropping indicating under utilisation of capacity just as in
the case of Thermax. The slow down in the industry directly reflects in the demand. BHEL has
a current ratio > 2 indicating that there is lot of funds that are not fully utilised and has
excellent cash reserves. While Thermax also has a good current ratio, the funds utilisation is
maximised.
COMPETITORS (2/2)
ABB is another big player in the same industry. With comparable current ratio and inventory
turnover ratio, ABB seems to be performing better against ROE, ROA indicating a healthy
growth
There has been consistent growth in the ROE and ROA of ABB as against declining curve for
Thermax. ABB has been executing high value projects having pioneered in the space of
automation in the core sectors.
While ABB has also been facing challenges in getting enough orders from the Power sector
their revenues are balanced by their Discrete Automation and Motion solutions. IoT seems to
be the key focus area for ABB
Clearly Thermax has taken the clue and has invested in R&D to re-design their solutions to
suit machine-machine communication using sensors, robotics and artificial intelligence. To
stay in the competition Thermax has to gear up in manufacturing smart equipments that can
reduce dependency on skilled labour that is already a rare commodity in the operating
environment.
ECONOMIC OUTLOOK
Thermax operates in an economy that has multifaceted challenges. Globally the core sectors
of business have slowed down. Chinas decision to regulate it economic growth has resulted in
surplus inflows and heavy price reduction in commodities
Paris Agreement on controlling the Global Climate change has greatly influenced the outlook
of the Power & Energy sector. Thermax sees strong growth opportunities with the need for
cleaner energy systems and use of renewable energy sources.
In India, solar power generation has gained impetus.
Governments plan to boost the infrastructure and revive distressed companies shows
promising future orders from the core sector.
Introduction of GST and relaxing FDI limits in several of the key sectors is expected to boost
the investment
Thermax has been diligently diversifying into newer technologies and emerging global
markets to sustain the widely prevalent uncertainties in the core business areas and any
geography specific fluctuations.
CONCLUSION
Thermax Ltd has comfortable Liquidity and has sufficient funds to clear the debts.
Companys cost management and financial management is very good so as to report profits
even when there is a decline in revenue.
While all other peers have been performing well, company has to have aggressive Marketing
and Sales to improve order intake
Company strategy for diversification of core sectors has helped in keeping the profit levels.
Coal block allocation, impetus for Solar power are areas to watch out for in order to increase
the revenue
Continued R&D in clean energy solutions, diversification into various markets are the right
strategy