Small-sized orders to hold fort for Thermax as larger ones wane

In Q3, the lack of large-ticket orders and a high base led to a 10% year-on-year (y-o-y) drop in inflow to ₹2,204 crore. Order inflow last quarter was driven by the momentum in base orders, which are smaller sized orders typically below ₹200 crore.

What’s more, the management is confident about a strong pipeline in base orders, going ahead. A higher presence of base orders could mean the execution of projects and income realization can be faster.

Amit Anwani, research analyst, Prabhudas Lilladher said, “Given the absence of large orders, the base and mid-range orders that typically get executed within a 12-month period, would be important and key to sustain Thermax’s growth.” According to the management, orders are expected from sectors such as sugar, steel, cement and chemicals.

“The chemical segment, which was suppressed due to supply chain, commodity inflation and other logistical challenges, is likely to see good improvement going forward as most of the issues have been sorted,” said Anwani.

As such, Thermax’s order book offers decent revenue visibility. In Q3, order book rose by 33% y-o-y to ₹9859 crore, which works out to 1.3 times trailing twelve-month revenue.

Further, the government’s focus on clean energy and decarbonization initiatives, and improvement in private capex spends across industries is likely to aid Thermax’s prospects.

On the margin front, stable commodity prices and freight costs in the past few months have augured well. In Q3, consolidated Ebitda (earnings before interest, taxes, depreciation and amortization) margin expanded by 86 basis points y-o-y to nearly 7.9%. One basis point is 0.01%. Revenue at ₹2,049 crore was up by almost 27% y-o-y led by robust growth in the energy and environment segments.

Meanwhile, shares of Thermax are up by nearly 9% so far in calendar year 2023. The steep valuations are a concern with the stock trading at 42 times estimated earnings for FY24, as per Bloomberg data. “Sustainability of base-order inflows growth, improving execution and ramping-up operating profit margins are key variables worth monitoring,” Nuvama Research said in a report on 13 February.