Thermax –Hold- Sharekhan

Thermax’ Q1FY2011 results were above our expectations on almost all fronts due to a strong growth in its top line. The net income from the operations increased by 49% year-on-year (y-o-y) to Rs778.8 crore against our expectation of Rs634.2 crore due to a robust growth in both the energy and the environment division. The environment division continued to post an excellent performance with a 77.4% y-o-y growth in the sales (vs our expectation of an 11% sales growth). The energy division also posted a strong y-o-y growth of 44.6% in revenues to Rs606.6 crore.

The company reported an operating profit margin (OPM) of 12.2%, which was lower than our expectation of 13%, and an operating profit margin (OPM) of 12.8% of Q1FY2010. This was mainly due to a higher raw material cost as a percentage of sales–66.5% in Q1FY2011 as compared to 62% in Q1FY2010. Nonetheless, the operating profit increased by 39.2% y-o-y to Rs96 crore. Net profit jumps by 42.3%: Boosted by the other income and almost a nil interest charge the adjusted net profit jumped by 42.3% y-o-y to Rs66.2 crore, which was above our estimate of Rs56.8 crore.

The company’s current order backlog at the group level stands at Rs6,984 crore vs Rs3,426 crore at the end of Q3FY2010. At the stand-alone level, the order book stands at Rs6,330 crore. During the quarter, the company won a Rs580-crore order for setting up a 72MW gas-based combined cycle power plant. Currently, we have a HOLD rating on the stock. We will revisit our estimates and price target for the stock after a conference call with the management. At the current market price the stock trades at 26.6x FY2011 estimate and 21.7x FY2012 estimate.

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