Thermax: Order restored

The Rs 3,484 crore Thermax has seen an increase in its order book of 44 per cent in the last one month. The consolidated order backlog for the Pune-based firm, which stood at Rs 284 crore at the end of the June 2008 quarter, has gone up to around Rs 405 crore thanks to a couple of big wins.

The uptrend in order flows should help the capital goods company come out of a lean patch that it had hit in FY08 when it didn’t bag too many orders. That’s also why the stock was a big underperformer during the year.

Revenues for Thermax grew by 8.2 per cent to Rs 772 crore in the June 2008 quarter driven by the environment segment which reported growth of 56 per cent y-o-y as the firm sold more water and air pollution equipment.

However, the energy segment’s performance was disappointing, falling by 3 per cent as it serviced fewer orders for boilers and heaters. The firm’s foray into the sub-critical utility boiler segment, with a foreign partner, will help it spend less on capital expenditure and improve profitability.

Thermax’s operating profit margins rose 120 basis points y-o-y to 12 per cent in the June quarter. However, with the majority of the contracts being fixed- price in nature, and commodity prices still high, margins could be under pressure.

The environment business is expected to see good growth in the next two years with Thermax entering new commercial, municipal segments and technology tie-ups.

Thermax is expected to grow revenues by about 13-14 per cent in FY09 to around Rs 3,960 crore. The net profit should be around Rs 320 crore, growing by 9-10 per cent. At the current price of Rs 502, the stock trades at just over 19 times its estimated FY09 earnings and is a tad expensive.