Can Thermax sustain its robust September quarter performance?
This quarter's operating margin of 10.3% marks a shift into double-digits after about six quarters
Capital goods maker Thermax Ltd put up an impressive show for the September quarter. Although revenue and profit growth cannot be indicative of a strong rebound in the capital goods segment yet, investors could draw comfort from the rise in order book and operating performance during the quarter.
Albeit on a low base of the preceding few quarters when the industry was down in the dumps, this quarter’s operating margin of 10.3% marks a shift into double-digits after about six quarters. It is 140 basis points higher than the year-ago period and Bloomberg’s consensus estimates. One basis point is one-hundredth of a percentage point.
The management attributes better operating performance to higher utilization and efficiency, along with better product mix in the revenue that accrued during the quarter.
Net revenue of ₹ 1,190.8 crore was better than the Street’s forecast and 14% higher than in the year-ago period. Operating profit soared by 30.4% to ₹ 122.2 crore, which also beat expectations by a wide margin.
However, several other non-operating factors added up to improve Thermax’s net profit for the quarter. Other income of ₹ 23.2 crore was a little over three times that in the year-ago period, which can be attributed to better customer advances and treasury income. Further, the quarter’s tax expenses were far lower than the year-ago period when the amount included additional claims levied by income-tax authorities. Therefore, the reported net profit of ₹ 86 crore was 2.8 times higher than a year ago.
Importantly, the order inflow for the quarter was 42% higher than in the year-ago period at ₹ 1,089 crore, a third of which is a single large order. The company, however, cautions that recovery for the capital goods sector is still some time away.
Thermax shares, which trade at ₹ 912, have underperformed the S&P BSE Capital Goods index, although it has gone up in the recent past on news of bagging new orders. Further earnings momentum hinges on the sustainability of the September quarter’s operating performance.
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