Thermax - Lockdown impacts execution - ICICI Securities

Project execution by Thermax was impacted in Q1FY21 due to the Covid-related lockdown resulting in the company reporting EBIDTA loss of Rs114mn. Chemical segment was the silver lining with better than expected profitability due to focus on specialty segment. Overseas subsidiaries fared better than the domestic business and Danstoker booked profit during Q1FY21. Overall, the near-term growth environment is challenging, but food processing, pharma, cement, emission control and refineries are segments in which the outlook is healthy. Maintain HOLD with target price unchanged at Rs740.

- Muted execution, challenging near-term outlook: Energy segment revenues declined 57% YoY to Rs5bn while the environment segment fell 43% YoY to Rs839mn. Impacted by two-month shutdown of Dahej plant, chemical segment revenues dropped 14% YoY to Rs843mn resulting in overall revenue decline of 52% YoY. Overall order intake was down 50% YoY at Rs6.1bn in Q1FY21. Current orderbook at Rs52.1bn (1x TTM sales) implies growth headwinds given higher execution cycle of ~Rs9bn worth of FGD orders.

- Overseas subsidiaries witness stable performance: Indonesia losses have reduced while Danstoker booked profit and is expected to be in the black for FY21E. Europe has witnessed relatively better revival in terms of order intake vs the other geographies.

- Expect traction from small and medium sized orders in FY21: Large orders from sectors like steel, cement and fertilisers will be scarce in the near to medium term. However, some green shoots are visible in the FGD segment from the private sector and Lot-6 FGD orders from NTPC. Oil&Gas outlook is healthy with orders from HPCL Barmer refinery likely to be finalised by subcontractors including L&T and Tata Projects. Other opportunities include food processing and pharma API related opportunities.

- Prudent management of cost and optimisation of resources: Company is focused towards cost reduction and optimisation given the stress in terms of growth. It plans to cut employee remuneration to support the overall margins; however, there is no plan to downsize the team.

- Maintain HOLD: The challenging macro-environment is likely to impact near-term prospects for the company. Its larger dependence on private sector capex puts it on the backfoot vs peers. Hence, we maintain HOLD on the stock with the target price unchanged at Rs740.

Shares of THERMAX LTD. was last trading in BSE at Rs.749 as compared to the previous close of Rs. 750.7. The total number of shares traded during the day was 6976 in over 621 trades.

The stock hit an intraday high of Rs. 771.75 and intraday low of 741.8. The net turnover during the day was Rs. 5307944.

Source : Equity Bulls

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