Mumbai: Capital goods maker Thermax Ltd has proved it can be resilient during tough times in the economy. The firm’s execution skills were reflected in the strong revenue growth during the June quarter, though macroeconomic issues weighed on profitability and order flows.

Net consolidated revenue of 1,392 crore zoomed past the 17-broker average forecast on Bloomberg by about 17%. It was 34% higher on a year-on-year (y-o-y) basis. Even the stand-alone revenue of 1,167.7 crore was up 37.5% y-o-y, for which analysts said the credit goes to the company’s better-than-expected execution.

Strong revenue and stringent cost-control in spite of higher raw material costs translated into 43.5% y-o-y growth in Ebitda (earnings before interest, tax, depreciation and amortization).

“The key takeaway was the consistency in execution trend, which led to revenue growth, giving some green shoots for the company to return back to growth path," said analysts at ICICI Securities Ltd. This also explains why the stock rose 3.8% to 1,087.75 on the National Stock Exchange on Thursday.

Yet, there were pressures on operating cost due to the liquidity crunch and delays in projects from the customer’s end, at times. This, along with provisions made towards its Chinese subsidiary, in which operations were discontinued, weighed on profitability. Ebitda margin widened by 40 basis points to 7.1%, but was lower than what the Street had pencilled.

That’s not all. Challenges are mounting in the economy, particularly for the capital goods sector. A few quarters ago, there was an increase in order flows that brought in optimism for this universe, especially for front-rung companies, such as Thermax, and well-managed global firms including Cummins India Ltd, Siemens Ltd and ABB India Ltd. However, the situation has turned grim since the general election, with core sector growth falling and weakness in almost all sectors of the economy.

For Thermax, consolidated order flows fell 26.3%, while the order book at the end of the June quarter was 18% lower from a year ago. M.S. Unnikrishnan, managing director and chief executive of Thermax, said: “Even after elections, we did not see much pick-up in orders. With capacity utilization in most sectors below the optimal level, most companies are deferring capex plans. Even short-cycle orders are slow as most managements are cautious."

To be sure, Thermax’s resilience is the key reason for the stock’s outperformance compared with benchmark indices, such as the Nifty Midcap 100. However, analysts reckoned that the pain will continue for several quarters.

Given the inertia even in private sector capex, Thermax’s shares may be range-bound, as its price-to-earnings ratio of 28 times estimated FY21 earnings factors in all positives.

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