FREE

MOSL: THERMAX (Buy)-Miss led by weak execution, pressure on margins

Thermax: Miss led by weak execution, pressure on margins

(TMX IN, Mkt Cap USD2.0b, CMP INR1147, TP INR1370, 17% Upside, Buy)

 

• Operational results below expectations due to weak execution and margins pressure: 4QFY18 operating performance at the consolidated level was below expectations. Sales declined 3% YoY to INR14.4b (est. of INR18.4b) due to a delay in dispatches (impact of INR2b) on account of (i) E-Way bill implementation (impact of INR1b) and (ii) inability to push sales (INR1b). TMX expects lost sales of INR2b to be recovered in 1QFY19. EBIDTA fell 20% YoY to INR1.4b, as negative operating leverage led to margin contraction of 200bp YoY to 9.6% (11.6% in 4QFY17). Adj. net profit rose 23% YoY to INR0.8b (est. of INR1.6b), led by a reduction in the share of loss from JV/associates from INR562m to INR172m in 4QFY18. For FY18, sales stood at INR44.6b (-0.4% YoY), EBIDTA at INR4.0b (-7.4% YoY) and adj. net profit at INR2.3b (-1.2% YoY).
• Weak performance at subsidiaries: Subsidiaries' revenue declined 10% YoY to INR1.3b, and operating loss stood at INR118m v/s operating profit of INR211m in the year-ago period. Net loss stood at INR351m in the quarter. This was mainly on account of a loss at Danstoker and Chinese subsidiary Zheijang (NR178m provision for litigation on four cases).
• Key concall highlights: a) Order inflow for FY19 to be at FY18 levels. b) Sectors like cement, steel and fertilizers showing traction. c) To buy 49% of B&W stake in the boiler facility, where it will look to manufacture subcritical/super critical boilers and NOx equipment. It has also got technology transferred from TBW for these equipment for 20 years. d) Targets double-digit EBIDTA margin in FY19.