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Thermax: Recommendation Review

| 8/9/2012 9:00 PM Thursday

Hold:

We had recommended Thermax to investors in DSIJ Vol. 26, Issue No. 14 (dated June 20-July 3, 2011), when the scrip was trading at Rs 615. Our recommendation was backed by factors like the company’s order backlog, the better-than-expected quarterly results in March 2011 and an anticipated improvement on the industrial front. However, owing to the overall economic slowdown, the financial performance of the company deteriorated and the scrip witnessed a decline.

We had reviewed the scrip again in DSIJ Vol. 26, Issue No. 26 (dated December 5-18, 2011), when it was trading at Rs 461. We had advised holding on to it at that point. The scrip has witnessed some up-move since then, and is trading at Rs 509.

On the financial front, the performance has not been good, with the topline and bottomline both witnessing a decline. For the quarter ended June 2012, its topline stood at Rs 983.47 crore and the bottomline stood at Rs 67.21 crore as against Rs 1044.42 crore and Rs 79.88 crore respectively during the same period last year. The overall slowdown in capex has impacted the growth prospects of the company. Rising raw material prices have impacted the margins, with the operating margins shrinking to 9.80 per cent, the lowest in the last 10 quarters. The overall order book stands at Rs 5042 crore, which is lower than Rs 6804 crore as in June 2011. The impact was clearly seen on the stock price, which declined significantly in 2011 and witnessed marginal improvement in 2012.

While the scrip is still trading below the recommended price, we feel that the worst is already priced in. The order book has also witnessed a marginal improvement on a QoQ basis. Hence, holding the counter at the current levels seems to be a prudent strategy.

 

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