The Consolidated order book for Thermax Group stands at Rs3,078 crore up 17% y-o-y, with a book-to-bill ratio of 0.9x.
The fall in order inflow of 5800 million by 20% y-o-y was on account of order cancellations and reduction in scope and value of some of the company’s large orders secured during FY09.
The Rs 800 crore Essar order has been reduced to 2 boilers from the previous 4 boilers and is now worth Rs380 crore.
Brahmani’s Rs400 crore order is now worth Rs297 crore. However, the management expects order inflows of approx Rs1,200 crore in H1FY10 and an improvement thereafter.
Further, the company’s entry into subcritical boilers (800 MW) has enabled it to win large orders.
As the global slowdown has taken a toll on India’s industrial production, IIP for 2008-09 grew by only 2.4% as against 8.5% in the 2007-08.
A revival of industrial production is round the corner, with excess liquidity in the system, easing of financial conditions and declines in some key interest rate spreads suggest that industrial activity will pick up in the second half of 2009-10.
The six core infrastructure sectors has also registered a growth of 4.3% in April, the most since July 2008, compared to a growth of 2.3% in April 2008, backed by significant contribution from coal, electricity and cement sectors.
An industry leader in the industrial boilers segment in the captive power segment, Thermax’s entry into a new arena into the subcritical space (800 MW), and a revival seen in the economy from H2 FY10, Thermax is confident of achieving higher inflow of order growth.
For the fiscal ended FY10, the management expects revenues and margins to be maintained with a better picture from FY11.
At the current price of Rs 395, the stock is quoting at 15x FY2010E EPS and 13x FY2011E EPS, which we believe is not inexpensive.
We initiate with an ACCUMULATE rating on the stock, with a target price of Rs450 based on a PE of 15x consolidated FY11E EPS of Rs30 per share.