Sell stocks of Thermax

“Thermax, Cons. Order backlog for FY12 stood @Rs.48bn down by 25% yoy & 17% qoq, reducing its revenue visibility to less than a year. The Energy segment contributed ~80% whereas the Environment segment contributed the remaining. Order inflows for FY12 stood @Rs.46bn drastically down by 23%, reflecting the concerns prevalent in the economy. Cons.Net revenues for FY12 registered a growth of 15% indicating a better than expected performance from the subsidiaries but the resultant PAT margins were down @6.6% due to continued losses from the Chinese subsidiary & the cost overruns from the Meenakshi order in its Thermax Instrumentation Ltd. subsidiary.”

“Standalone net sales have grown by 10% due to better than expected execution from the Environment segment which has grown by 12% yoy & the Energy segment which has grown by 7% yoy. Operating margins for the Energy segment has improved marginally @10.8% whereas for the Environment segment it has declined marginally @12.5%. Raw material cost as a % of sales has declined from 72% to 70% on account of improved manpower productivity which has also helped reducing its employee costs as a % sales. Its overall expenditure has remained flat @90% with stable operating margins @11%. Depreciation cost has remained flat but its interest cost has almost doubled which has reduced its PAT margins @7.7% but overall PAT has grown by 6% yoy. At its CMP of Rs.420, we maintain our SELL rating, in line with our previous recommendation, with the stock trading at 13x FY13E EPS of Rs.33, we believe it to be high given the lack of clarity on order inflows. Although exploring oppurtunities in the African & the Middle East market could benefit Thermax in this adverse domestic slowdown,” says Way2Wealth research report.