BackThermax's order inflows triple in Q1, but offer little comfort to investors
Thermax's order inflows were robust even after excluding a single large order of Rs250 crore. That said, the management was unable to affirm if the ordering environment has improved as most orders could be pent-up in nature
PremiumA key takeaway from the June quarter (Q1 FY22) earnings of Thermax Ltd was the improvement in its order inflows. Aided by a favourable base, order inflows almost tripled to Rs1,700 crore in Q1FY22 compared to the same quarter a year ago. On a sequential basis, the rise was 13% with robust orders from refinery, cement, and steel sectors. Consequently, at the end of the June quarter, its order book stood at Rs6,100 crore, up 17% y-o-y and the highest since December 2018. Its book-to-bill ratio was at 1.2 times.
According to the company's management, there had been sustained recovery in base orders for the last three quarters and enquiry levels were improving, with order inflows closer to the higher end of the Rs1,200-1,500 crore run-rate. In a post earnings conference call, the management said that order inflows were robust even after excluding a single large order of Rs250 crore. That said, the management was unable to affirm if the ordering environment has improved as most orders could be pent-up in nature.
According to analysts at Motilal Oswal Financial Services Ltd, the ordering environment may remain weak for some more time as the second covid wave has led to disruptions. While the current order backlog provides some revenue visibility, the broking firm sees 16% revenue CAGR over FY21-24E, largely due to a soft base of FY21, as the company has seen a disproportionate impact of COVID-19. CAGR is short for compounded annual growth rate.
Further, higher competitive intensity limits the scope for margin expansion. Analysts note that even for large FGD orders, where technical expertise and execution capabilities required are high, competition is greater.
Meanwhile, the company's consolidated profit and revenue in the June quarter missed consensus estimates and margins were impacted by higher operating expenses. In this backdrop, analysts at Nirmal Bang Securities Ltd find the stock's valuations expensive. "Overall, risk of bigger projects getting postponed continues to prevail in the system. We maintain Sell rating, valuing it 30 times FY23E earnings per share," it said in a report.
Reacting to earnings, shares of Thermax were down about a percent on the National Stock Exchange in early deals on Tuesday.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
