PL Stock Report: Thermax (TMX IN) - Q2FY24 Result Update – Healthy Q2, confident on H2 order inflows - HOLD

Thermax (TMX IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs2,895 | TP: Rs2,771

Q2FY24 Result Update – Healthy Q2, confident on H2 order inflows

Quick Pointers:

§ Order book stands strong at ~Rs103bn (1.2x TTM revenue), providing revenue visibility for next couple of quarters.

§ Enquiry pipeline continues to remain healthy from food & beverages, steel, distillery, chemicals etc. sectors for base orders.

Thermax (TMX) reported healthy quarterly performance, with consolidated revenue growth of 10.9% YoY and EBITDA margin expanding 211bps YoY, driven by few projects reaching above average margin recognition level in Q2FY24. Order inflows were down by 2.1% YoY to Rs19.7bn in Q2FY24 due to absence of large orders, however management is bullish for H2FY24 on order inflows front with couple of large order under discussion stage. Domestic enquiry pipeline, continues to remain healthy for medium size order from food & Beverages, Chemicals, metals etc. Exports enquiry pipeline continues to remains strong. Large orders from Oil & Gas sectors is muted while it is gaining traction in Steel & Metals sector.

We believe TMX is well placed to gain from increasing thrust on energy transition & de-carbonization initiatives led by its 1) technical expertise, 2) strong balance sheet and 3) prudent working capital management. The stock is currently trading at PE of 55.3x/47.6x/42.5x FY24/25/26E. We roll forward to Sep’25E and maintain ‘Hold’ rating with revised TP of Rs2,771 (Rs2,613 earlier), valuing it at PE of 43x Sep’25E (43x FY25E earlier).

Strong operational performance drives PAT growth: Consol. sales grew 10.9% YoY to Rs23bn (PLe ~Rs24.2bn), driven by growth in Industrial Products and Industrial Infra. Industrial products grew 18% YoY to Rs9.9bn, Industrial Infra up 13.1% YoY to Rs10.9bn while it declined for Green Solutions down 7.5% YoY to Rs1.2bn and Chemicals down 1.9% YoY Rs1.9bn. Gross margin expanded 377bps YoY to 44.4%, on a low base in Q2FY23 (adverse impact of commodity inflation). EBITDA grew 45.6% YoY Rs2bn, (PLe ~Rs1.9bn) with EBITDA margins expanding by 211bps YoY to 8.9% (vs PL estimate ~8.0%) despite higher other expenses (up 14.5% YoY) and Employee cost (up 20.1% YoY). Adj. PAT grew 45.3% YoY to Rs1.6mn (PLe Rs1.5bn), mainly due to healthy operational performance.

Healthy order book of Rs102.6bn: Order inflows during the quarter came in at Rs19.7bn, down 2.1% YoY, impacted due to decline in Industrial Infra (down 19% YoY to Rs6.6bn) and Chemicals (down 5.8% YoY to Rs1.8bn). While it grew for Industrial products (up 11.5% YoY to Rs10.8bn) and Green Solutions (up 23.4% YoY to Rs580mn). Order book stands strong at ~Rs103bn (1.2x TTM revenue), comprising of Industrial Infra (~58%), Industrial Product (~34%) and Green Solution (~7%).

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