Thermax: robust order book, but overvalued

Thermax: robust order book, but overvalued
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First Published: Wed, Nov 25 2009. 12 35 AM IST

Updated: Wed, Nov 25 2009. 12 35 AM IST
Thermax Ltd’s stock has gained momentum in the last three months on news of its improving order book. Since September when news of orders has been trickling in, the share price has shot up from around Rs460 to Rs617. From current levels, the upside in terms of returns for the investor is limited, as the full year could post a marginal decline or flat sales.
Thermax gained higher revenue visibility with an order book on a consolidated basis of around Rs5,060 crore during the first half of FY10. Of this the domestic order balance is around Rs4,400 crore and the international component around Rs650 crore. By March 2010, the company is confident of bagging another Rs1,500 to Rs1,700 crore worth of orders. However, these orders will be executed over a 16-20 month cycle. This means that these orders to translate into revenues only from FY11 onwards.
Graphics: Sandeep Bhatnagar / Mint
Thermax is a play on the energy and capital goods segment in the private sector, where huge spends are yet to be seen. Nearly 80% of its revenues accrue from the energy sector and balance from the environmental segment where it has small orders from the municipal sector. A third of the order book is now from utilities. Cement accounts for 22%, food 10%, textiles 7%, metals 5% and municipal corporations 5%.
Its weak order back log during the second half of FY09 coupled with the longer execution cycle led to negative top line growth in the second quarter of FY10. On a stand alone basis, revenues fell 15% to Rs680 crore and operating profit was down nearly 40% at Rs 79 crore when compared to the previous corresponding period. The net profit was marginally down by 5% at Rs54 crore.
This trend could continue during the second half of FY10 too. Analysts’ consensus is that revenues for the full year will be in line with that of FY09 when it clocked revenues of around Rs3,460 crore. The same could be true of earnings per share which was around Rs24 during FY09. At the current price, FY10 earnings are discounted around 25 times.
While this is an indication of investor confidence, one cannot expect returns in the near future. An expansion in profit and earnings will be seen from FY11 onwards.
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First Published: Wed, Nov 25 2009. 12 35 AM IST