Stock Review: Thermax

Thermax recorded three year-high growth of 60 per cent in revenues to 1,092 crore in the July-September quarter. This was partly due to low base in the same quarter last year (a decline of 15 per cent in revenues) and strong execution of large orders in the energy segment, which saw a jump of 72 per cent in sales ( `891 crore or 78 per cent of the total sales).

Revenues from the environment segment rose 50 per cent to `248 crore. Both segments saw record sales growth. Operating profit margin and net profit margin were 12 per cent and eight per cent, respectively, despite arise in raw material costs and taxation.

However, the energy segment saw a decline in profit before interest and tax (PBIT) margin of 100 basis points (bps) to 10.2 per cent — the lowest in the last three years —while the environment segment saw the PBIT margin stay stable at 12.5 per cent.

Thermax reported strong growth of 43 per cent in its order book at `7,260 crore om the back of `3,200-crore order inflows in H1FY11 (`1,400 in Q2FY11). The outlook is strong as the company is getting enquiries from various industries. The key feature in the second quarter was a pickup in short-cycle product orders from power cogen, cement and steel companies, which could influence nearterm earnings, said an Emkay Securities report.

The company's plan to enter boiler manufacturing in ajoint venture with Babcock and Wilcox, to be operational by the end of financial year 2011-12, will place it in a different trajectory and improve scalability and scope of business. Given these positive developments in the pipeline, the valuation of 22 times FY12 estimated earnings look reasonable.

The performance in the September 2010 quarter reflected the robust economic activity in India