Thermax: robust order book, but overvalued

Thermax: robust order book, but overvalued

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

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 80 crore and operating profit was down nearly 40% at 79 crore when compared to the previous corresponding period. The net profit was marginally down by 5% at 4 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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