The Indian equity market seems to have entered a very dull and tepid phase. The reason is quite simple i.e. the expected slowdown in the GDP growth and its likely impact on India Inc. However, in such a scenario too there are certain companies which are expected to put up a better show. One such company is Thermax. It has posted better than expected results for Q4FY11 and FY11 as a whole. While most on the street were expecting slower order inflows and a pressure on the margins to impact the results negatively, the company actually surprised them by going the other way.

The order inflow has remained strong with the current order backlog valued at Rs 6,450 cr. This is almost 1.50 times of its FY11 revenues and is to be executed in the next 18 months. The best part is that the order book is quite diversified with metals contributing 20%, refinery 18%, cement 18%, power 12%, sugar 8%, captive power 8% and the rest spread over other projects. It clearly indicates that the company is not dependent on any one particular sector. Going ahead the company expects the order flows to remain healthy with a major order expected in the next quarter.

This order would be to the tune of Rs 1,450 cr in Q1 or Q2 of FY12. According to the management, a sustained momentum in the steel and paper sectors is what will keep its order book on the healthy side. Secondly, there is no expectation of a slowdown in orders from captive power plants despite issues with respect to coal linkage availability. Also, a revival in demand from the Middle East and South-East Asian markets is what will help a good flow of orders going forward.

Last year Thermax acquired the European boiler manufacturer Danstoker A/S and its German subsidiary, Omnical Kessel. This acquisition seems to be a strategic fit for the company’s heating business and is the first step towards its agenda of growth in global markets by expanding its environment solution portfolio. Along with this, Thermax Babcock & Wilcox Energy Solutions, the joint venture company formed for manufacturing super-critical boilers, commenced work on its plant facility in Shirwal (Satara, Maharashtra). Planned at an investment of Rs 825 cr, the facility is expected to be completed by September 2012 and it will be India’s third manufacturing facility for super-critical boilers.

On the financial front, despite margin pressures FY11 has been a good year. On a consolidated basis the company posted topline of Rs 5,337 cr as against Rs 3,370 cr in FY10. With minimal impact on EBITDA margins which declined to 11.60% in FY11 from 11.80% in FY10, the bottomline at Rs 382 cr was better than Rs 318 cr (after adding back the extraordinary expense of Rs 174 cr for the settlement of a business dispute). On the valuation front the scrip is available at 18x (EPS Rs 32.09) of its FY11 earnings. With the management expecting around 15-20% growth in the earnings for FY12 our recommendation to investors is to buy the scrip at its current levels with a target price of Rs 700.