Recommendation: Buy
Current price: Rs 256 (at the time of publishing this tip)
Price target: Rs 564
Key points:
- Thermax’ quarterly results were marred by a huge forex loss of Rs 37.4 crore. Its top line growth too was lower than expected during the quarter. The company reported just its stand-alone numbers for Q2-FY2009 on account of certain changes in the regulations of the Securities and Exchange Board of India. The stand-alone top line of Thermax grew by just 4.4% to Rs 804.1 crore in the quarter led by a sedate order booking in the last year.
- Though the environment division reported a strong growth of 58.4% in its revenues for the quarter, the energy division reported a decline of 9.1% in its revenues for the same quarter. The other expenditures during the quarter include a forex loss of Rs 37.4 crore, adjusting for which the operating profit margin has grown by 360 basis points to 16.3% and the operating profit has grown by 33.5%. The margin improvement has been mainly on account of better cost management and execution of higher-margin orders during the quarter.
- A lower other income, and stable interest and depreciation costs led to a 22.4% growth in the adjusted profits to Rs 82.2 crore. On the other hand, the reported profit after the forex loss marks a decline of 17.7% to Rs 57 crore. On a consolidated basis, for the first half of FY2009, the company has reported a growth of 5.3% in its top line and a 12.1% decline in its reported profit. However, adjusting for the forex loss and the pre-operative expenses related to its Chinese subsidiary, the net profit has grown by 17% in the first half.
- For the quarter, the company has reported a 2.8% growth in the revenues and a 6.8% growth in the adjusted net profit to Rs 77.5 crore. Thermax’ strong order book position provides reasonable visibility to its revenues which should trigger future growth.
- At current market price, the stock is trading at 7.3x FY2010E earnings and an enterprise value/earnings before interest, depreciation, tax and amortisation of 3.7x.
- I maintain a little cautious Buy call on this stock with a price target of Rs 564 with a long-term horizon.
