MOSL: THERMAX (Neutral)-Miss led by weak execution, pressure on margins
Thermax: Miss led by weak execution, pressure on margins
(TMX IN, Mkt Cap USD2.2b, CMP INR980, TP INR1250, 6% Upside, Neutral)
- Operational results below expectations due to weak execution and pressure on margins: 3QFY18 operating performance at the consolidated level was below expectations. Sales grew 18% YoY to INR11.2b (est. of INR12.1b), impacted by a weak performance in the environment (+3% YoY, INR1.7b) and chemicals (7% YoY, INR0.9b) segments. Gross margin shrunk 590bp YoY to 47.4% due to adverse raw material price movement and execution of lower-margin orders. Despite a 590bp contraction in the gross margin, the operating margin shrunk by only 80bp YoY to 8.5% (est. of 9.0%) due to lower other expenses (-320bp YoY to 23.5%). EBIDTA grew 9% YoY to INR0.96b. Adj. net profit rose 9% YoY to INR0.6b (est. of INR0.78b).
- Weak performance at subsidiaries: Subsidiaries’ revenue declined 14% YoY to INR1.4b and EBIDTA fell 55% YoY to INR30m. Subsidiaries recorded a loss of INR46m, mainly due to a loss at Danstoker and Chinese subsidiary Zheijang. At the standalone level, TMX’s revenue stood at INR9.8b (+25% YoY), led by a pick-up in execution of orders in hand. EBIDTA stood at INR924m (+14.6% YoY), with the margin at 9.4% (-90bp YoY). Adj. PAT grew 11.5% YoY to INR632m.
Thermax is engaged in the manufacture and development of a range of products and solutions in heating, cooling and power generation. In addition, Co. is engaged in the provision of water treatment, waste management and air pollution controlling services and the manufacture of related fuel and water chemicals. Co., through its subsidiaries, is engaged in the manufacture and sale of industrial boilers suitable for various fuels, CFBC boilers for power plants; painting equipment; measuring, checking and pressure instruments; process control and regulating instruments; and provision of lease, hire purchase, bill discounting and other finance related services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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