Thermax’ Q1FY2010 results have been disappointing on all fronts with its both revenue and profits sharply lower than expected.

The net income from its operations declined 25% year-on-year (y-o-y) to Rs537.6 crore during the quarter. Both the energy and the environment division have reported a decline in their revenues: a drop of 23.3% and 29.9% respectively.

On the operating profitability front, the operating profit of declined by 24.4% to Rs68.9 crore, translating into an operating profit margin of 12.8% (up ten basis points y-o-y). The profit before interest and tax (PBIT) margin of the energy division dipped 150 basis points to 12.4%.

The other income remained more or less flat (a growth of 1%) at Rs10.3 crore. The interest cost increased by 80.2% while the depreciation charge rose by 36.4% to Rs9.5 crore. Consequently, the net profit declined by 27% to Rs46.5 crore during the quarter.

The consolidated order book of the company increased to Rs3,426 crore in Q1FY2010 from Rs3,078 crore at the end of Q4FY2009.

Outlook

We will revisit our estimates, price target and recommendation for Thermax after attending the company’s conference call.

However, we feel a significant revival in private capital expenditure would be the only driver of orders for the company.

Given the slowdown in the company’s order inflow, we feel the current valuation of its stock adequately captures the growth potential of the company.

We advise investors to partially book profits in the stock.