Analyst Corner: Maintain ‘buy’ on Thermax with target price of Rs 1,506

The corporate can also be specializing in quick cycle low-ticket sized orders and companies which can allow it sort out any near-term lull in demand effectively.

Steady execution, wholesome progress outlook: Atmosphere phase registered robust income progress of 51% YoY toRs 3bn, power phase grew 12% YoY toRs 12bn and chemical phase grew 24% YoY to Rs 1.2bn leading to 19% YoY income progress to Rs 15.7bn. Order consumption grew 57% YoY to Rs 15bn in Q4FY21. Present orderbook at Rs 52.2bn (1.1x TTM gross sales) implies improved visibility. Because of the second wave of covid, near-term outlook is unsure; nonetheless, funding outlook is wholesome in medium to long run.

Abroad subsidiaries’ efficiency stress continues: Order consumption is regularly recovering from the abroad market; nonetheless, efficiency had been beneath par throughout Q4FY21.

Demand from core sectors and quick cycle orders will assist progress: Demand from core sectors like cement, metal and refinery has been wholesome in Q4FY21. The corporate can also be specializing in quick cycle low-ticket sized orders and companies which can allow it sort out any near-term lull in demand effectively. Drive in direction of enchancment in collections and margins might proceed supporting the cashflow.

Keep HOLD regardless of excessive valuation: The corporate is at the moment buying and selling at a wealthy valuation of 47x FY22E and 38x FY23E earnings. We imagine robust cashflow from operations, because of discount in working capital, has given additional fillip to re-rating. Strategic progress initiatives in new progress segments will open up new long-term alternatives. Given different progress, margin and return trajectory of the three segments, we have now shifted our valuation strategy to SoTP. Attributable to robust progress prospects, excessive returns and margins beneath chemical substances which is at decrease utilisation at the moment we assign 60x FY23E core a number of, setting at 45x and power at 30x a number of.

We preserve HOLD score on the inventory with a revised SoTP-based goal of Rs 1,506 implying 40x FY23E earnings.