MOSL: THERMAX (Buy)-Outperformance driven by strong execution in Energy segment
Thermax: Outperformance driven by strong execution in Energy segment
(TMX IN, Mkt Cap USD1.7b, CMP INR991, TP INR1190, 20% Upside, Buy)
- Operating performance ahead of expectations: Sales grew 44% YoY to INR20.7b in 4QFY19. EBIDTA increased 24% YoY to INR1.7b, as margin contracted 140bp YoY to 8.2%. Adj. PAT grew 64% YoY to INR1.2b, ahead of our estimate of INR979m, supported by a lower tax rate at 36%.
- Revenue growth to moderate due to lower opening order book: Weak order inflow (-12% for FY19) and healthy execution (+34% YoY) have led to a decline in order backlog (-6% YoY to INR53.7b). Thus, we believe revenue growth will moderate in FY20 (+7.7% YoY). However, with ordering activity showing signs of a revival, revenue will likely bounce back in FY21 with growth of 19% YoY.
- Margins shrink due to adverse revenue mix, losses in Danstoker: Operating margin contracted by 140bp to 8.2% due to the loss of INR190m in its overseas subsidiary Danstoker and the execution of weaker-margin orders in the power business. However, we note that (a) legacy orders of Danstoker have been completed with no further losses expected and (b) the margin of the boiler and heater business is set to improve. Consequently, we have baked in a 60bp operating margin improvement in FY20.
- Order inflow muted, but outlook for standard business stable: Order inflow declined 28% YoY to INR11.6b on account of the absence of large-ticket order finalization. TMX expects order inflow to improve in FY20, given rising demand for standard products from industries like cement, food processing, light engineering and auto, as well as FGD ordering from the power sector.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.