Hold Thermax, target price Rs 675: ICICI Securities

ICICI Securities has given a hold rating to Thermax Ltd with a target price of Rs 675. Demand in the first half of FY21E is likely to be slow due to the ongoing coronavirus-related impact. Delay in collections and support to small vendors is also expected to stretch the working capital cycle. Performance of the overseas subsidiaries in Europe and South-East Asia is also likely to be impacted by the Covid-19 pandemic.
The share price moved down by -0.76 per cent from its previous close of Rs 713.85. The last traded stock price is Rs 708.40. Incorporated in 1980, Thermax has a market cap of Rs 8511.93 crore.

Investment Rationale

Factoring in the increased subcontracting cost, the brokerage marginally cut earnings by 1.3 per cent for FY21E. The stock is trading at 31.1 times FY21E earnings and given the recent correction in valuation, the brokerage has maintained hold rating with a revised target price of Rs 675 (earlier: Rs 684).

Improvement in gross margins, turnaround in overseas subsidiaries and large order finalisations will be the key rerating catalysts for the stock.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 1410.05 crore, down -12.19 per cent from last quarter sales of Rs 1605.85 crore and down -1.85 per cent from last year's same quarter sales of Rs 1436.60 crore. The company reported net profit after tax of Rs 84.96 crore in the latest quarter

Promoter/FII Holdings

Promoters held 61.98 per cent stake in the company as of March 31, 2020, while FIIs held 7.77 per cent, DIIs 17.48 per cent and public & others 12.67 per cent.