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MOSL: THERMAX (Neutral)-In-line results; Depleting order book to limit revenue growth

Thermax: In-line results; Depleting order book to limit revenue growth

(TMX IN, Mkt Cap USD1.8b, CMP INR1074, TP INR1200, 12% Upside, Neutral)

 

• Thermax's 3QFY20 operating performance was in line with our expectation. Increase in order inflows (+9% YoY) was mainly on account of a large FGD order received from Jharkhand. Order book stood at INR54.4b (-16% YoY).
• Superior execution over the past 6-7 quarters has led to depletion of the order book, especially in the weak ordering environment. Thus, revenue growth momentum is likely to slow down, which is evident from the 3QFY20 results as top line declined 2% after 6 quarters of strong growth.
• While we have maintained our EBITDA est., our EPS est. has been cut by 4-5% for FY20-22E on account of higher depreciation and lower other income. Maintain Neutral with TP of INR1,200 from INR1,170 earlier as we roll over to Sep'21E EPS. 

In-line operating performance; Order inflow helped by FGD order

• 3QFY20 revenues were muted at INR14.1b (- 2% YoY). EBITDA growth of 5.4% YoY to INR1.1b was in line with our est., while EBITDA margin expanded 50bp YoY to 8.0%.
• PBT declined 6% YoY to INR1.1b (7% miss) due to higher depreciation and lower other income. Effective tax rate was 19.4% (v/s 41% YoY in 3QFY19).
• PAT grew 30% YoY to INR850m (in line with our est. of INR845m).
• Segment performance: (a) Energy revenue (78% of overall revenue) declined 1% YoY to INR11.2b. PBIT margin expanded 40bp YoY to 5.8%. (b) Environmental revenue (14% of overall revenue) was down 8% YoY to INR2.0b. PBIT margin shrank 200bp YoY to 5.2%. (c) Chemical revenue (8% of overall revenue) grew 5% YoY to INR1.2b. PBIT margin expanded to 24.7% from 15.4% in the year-ago period. Margins in this segment were higher on account of greater proportion of specialty chemicals.