Thermax Ltd's order inflows halved in the June quarter to ₹610 crore due to slowdown in industrial activities
Thermax continues to be debt free with net cash of nearly ₹1,300 crore in fiscal year 2020
Thermax Ltd's order inflows halved in the June quarter to ₹610 crore due to slowdown in industrial activities. In a post earnings conference call, its management spoke about rise in project enquiries from metals, cement and power generation sectors. However, delays in private capital expenditure recovery could weigh on order inflows in fiscal year 2021, it cautioned.
Despite fresh enquiries, analysts caution of finalisation delays due cost rationalization by potential customers. Thus, keeping the order inflow outlook hazy for the near-term. On a year-on-year basis, its order book was largely flat at ₹5,212 crore in the June quarter.
“While most of the former orders are small in size, pick up in large orders remains key for Thermax to improve visibility given current order book at less than 1x FY20 revenues," analysts at Edelweiss Securities Ltd said in a report on 13 August.
But that’s not all. There are other worries for investors in this stock. For instance, the turnaround of its international operations. In the June quarter, its German subsidiary boiler-maker Danstroker was profitable due to cost rationalization. However, given covid-19 uncertainties, the management doesn’t expect significant orders in the near-term. Secondly, although its Indonesian operations have commenced, the management said that its units are operating at lower utilization levels.
In the current gloomy global demand scenario, analysts expect Indonesian operations to take longer-than-anticipated to break even. High local competition and excess supply could also delay recovery of its Indonesia business, they added.
“Thermax’s internationalisation strategy is yet to play out and historically Thermax’s strategy outside India has not fared well. That coupled with a change in the top management could lead to change in strategy," domestic brokerage PhilipCapital Ltd said in a report on 13 August. The company’s managing director and chief executive officer M.S. Unnikrishnan, who is retiring in August, will be replaced by Ashish Bhandari.
Of course, Thermax continues to be debt free with net cash of nearly ₹1,300 crore in fiscal year 2020. But these positives are baked-into its valuations. Bloomberg’s estimates show that the stock is trading at a one-year forward price-to-earnings multiple of 27 times. Given the bleak order intake outlook, this valuation multiple is demanding.
Meanwhile, the stock’s performance is hardly impressive. From high of ₹1,116.55 seen in January, the stock currently at ₹796, is still down more than 20%. However, in this month so far, the stock has rallied by around 9%.
According to foreign brokerage house Macquarie, the recent rally in the shares adds to the caution. Macquarie has downgraded Thermax to underperform with a target price of ₹710 per share as it sees no positive triggers for the stock on the horizon.