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Analyst Research Report Snapshot


Thermax Ltd. (TMX) - Visit Note - Dated - Sept 16, 2013




Axis Capital Limited


16 Sep 2013





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Our interaction with Thermax’ (TMX) top management lends confidence that its long term strategy is well placed to take the company to next growth orbit. TMX has laid the building blocks by investing in product innovation, geographical diversification (target exports at 70% from 30%), O&M services and supercritical boilers. However, it would refrain from any large ticket M&A. Long-term sustainable margin to be 13-14% vs. 10% on better mix, operating leverage, and industry consolidation. We believe TMX’ vision for long term growth and margin though ambitious can be achieved over 5-10 years led by its inherent strengths and an economic up-cycle. Hence long term prospects are promising even though weak macro may keep the stock subdued in the near term. Remains our preferred pick but reduce estimates to capture continued slow down We maintain our FY14 order inflow estimate of Rs 65 bn (up 34%) due to large order worth Rs 17 bn from RIL. However, we lower our FY15 order inflow estimate to Rs 66 bn (from Rs 74 bn) to factor in our revised GDP growth estimate of 4.8% in FY15 (5.7% earlier). Consequently, our FY15E EPS stands reduced to Rs 36.7 from Rs 38.7 earlier. Maintain HOLD with revised target price of Rs 587 (Rs 619 earlier) based on 16x FY15E. TMX is a professionally managed company with a conservative approach which is evident from focus on cash flows over growth and policy to keep sector/ customer concentration in defined limits. Hence a weak macro has lower impact on profitability vs. peers. While we believe the stock is likely to be range bound until there is clarity on turnaround in domestic capex, it will continue to command premium valuation over peers. Key triggers for the stock are large order wins in supercritical boilers and traction in export orders. Key risk to our call is execution disappointment. At CMP of Rs 594 (implies 1% downside), the stock trades at PE of 19x FY14E EPS of Rs 32 and 16x FY15E EPS of Rs 38. Regards, Bhavin Vithlani (Executive Director – Power & Cap Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1144 Charanjit Singh (Vice President – Capital Goods) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1123

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