Accumulate Thermax; target of Rs 1018: Prabhudas Liladhar

Prabhudas Liladhar's research report on Thermax

We recently met the Management of Thermax (TMX) and our key takeaways are: 1) The general enquiry levels from the domestic market were better YoY, both in standard project and medium project business. 2) The sectors in domestic market enjoying good enquiry levels are Textile/Light chemical/Food and food processing/Fertilizer/Steel/Cement/Hospitality largely from Tier II cities. 3) TMX is also seeing good tender finalization for Euro VI orders from Oil &Gas space. TMX highlighted that its foray into manufacturing in Indonesia was led by requirement of local manufacturing. Also, entering new markets will help support growth of the energy business as the business is currently largely dependent on growth in domestic market.

Outlook

The stock is trading at 27.6x FY19E earnings. TMX has the ability to bag base orders of ~Rs7‐8bn per quarter. Increasing market share, strong product profile, increasing traction in export market and strong management pedigree gives us confidence that the company will be able to participate in the upturn of the cycle meaningfully and continue to surprise positively in terms of order flow. We continue to recommend ‘Accumulate’ at lower levels from a medium/long‐term perspective.

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