Thermax has 40 years of experience in designing and manufacturing a wide range of boilers, heaters and heat recovery steam generators on a variety of fuels including solid, liquid, gas and also biowaste like bagasse and rice husk.
The cumulative boilers supplied total over 4000 MW of power in the industrial, power and small utility sectors.
The company is also a leading supplier of captive power and cogeneration plants in India. The demand for captive power is driven by requirement of reliable power supply at competitive cost.
Due to factors like thawing of global credit markets, improved economic outlook and stable political environment in the domestic economy has resulted in improvement of business confidence. This is translating into traction for order booking.
For the quarter ended June 2009, the company booked fresh orders of Rs10 billion as against Rs5.8 billion in Q4 FY09 and substantially ahead of our expectations. Order backlog is up 18% y-o-y to Rs32.3 billion, thus imparting a revenue visibility of 13 months of FY09 revenues.
The management has further indicated that order booking in July-August 2009 has been higher on a month-on-month basis. The management has indicated a 10-15% rise in order bookings in the current fiscal.
Profits remained flat in FY09 as the company had begun the year with a lower order backlog. The company managed to maintain EBITDA margins at high level despite the increase in material prices during the year.
We forecast sluggish revenue growth to continue in FY10 as well due to overall slowdown in order booking and also on the execution front.
In the first quarter, the company reported 27% decline in revenues. While EBITDA margins expanded as a result of cost containment, the profits dipped by 27% in line with revenues.
For FY11, we expect revenue growth to be driven by traction on the execution front. Earnings are expected to rise by 20% in FY11.
Our previous update was Reduce at Rs 447 with a target price of Rs 400. Our call was based on muted near-term earnings growth and limited valuation upside.
We revise our call upwards to ACCUMULATE on recent decline in stock price, expected rebound in earnings growth in FY11 as order inflows have been healthy in FY10 and revival in economic growth in FY11 should accelerate project execution thus translating into revenue generation.