Bleak Pospects

Factor in the sector’s bleak outlook & weak order inflows before investing in Thermax…


What are the future prospect of Thermax?
-Aditi

Thermax specialises in engineering and environmental engineering solutions. It offers products and services in areas such as heating, cooling, waste heat recovery, captive power, water treatment and recycling, waste management and performance chemicals.

The company acquired Danstoker A/S (in 2011-12), a leading European boiler manufacturer and its German subsidiary, Omnical Kessel. It also entered into a joint venture (JV) with Babcock & Wilcox of USA for manufacturing supercritical boilers. As over 60 per cent of the coal-based power projects coming up in the XIIth plan will be based on supercritical technology, this will enable Thermax to bid for orders for boilers, turbines and generators (BTG).

the first time in five years, the company’s operating profit margin (OPM) declined below 13 per cent in FY11. A higher share of EPC projects in revenue and hardening of steel prices have adversely impacted margins. Slowdown in order inflows remains the company’s biggest concern. Thermax’s order intake declined 9 per cent y-o-y in Q2FY12.

The stock is trading at a price-to-earnings (P/E) ratio of 12.5, which is at a discount to its five-year median P/E of 24.3. Its price-to-earnings to growth ratio comes to 0.4. Order inflow is likely to remain muted for the next two to three quarters. So despite attractive valuations, factor in the sector’s bleak outlook and the lack of order inflows before investing.

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