Thermax

Edelweiss on Thermax - target price Rs 694

Edelweiss has maintained its Buy rating on Thermax with a target price of Rs 694 - an upside of 21%.

A report released said: Our current order inflows estimate for FY10 at the standalone level is at INR 37.7 bn, which we revise upwards to INR 42.9 bn. This implies additional order inflow of INR 8.9 bn in the balance part of FY10. Earlier, management had expressed confidence that orders are likely to come from chemicals, petrochemicals, and pharmaceutical industries even as those from the ferrous vertical are likely to decline. Please note that our implied incremental required order inflow numbers for FY10 may be overstated, as the company does not announce small ticket size orders during the quarter, which essentially understates actual YTD order inflow.

Upgrades to FY10 order inflow estimates lead to upwards revision in our FY11 and FY12 sales and net profit estimates. For FY11, our consolidated EPS estimate now stands at INR 32.3, higher by 2.1%, significantly ahead of consensus. The consensus EPS estimate (BB) for FY11 is at INR 27.5. For FY12, we revise our EPS estimate up by 5.7% to INR 40.6."We are upgrading our one year DCF value for TMX to INR 694 (higher by 6%), implying a 21.5% upside from current price levels.

We have upgraded our one year target price due to higher growth in cash flows in explicit forecast period driven by increase in order inflow. Historically, the stock has traded at one year forward P/E band between 15x and 20x. At our target price of INR 694, the implied P/E is 21.5x and 17.1x for FY11E and FY12E, respectively. At our current estimates, the stock is trading at P/E of 24.8x, 17.7x, and 14.1x for FY10E, FY11E, and FY12E, respectively. We maintain our ‘BUY’ recommendation on the stock.