HSBC 'Underweight' on Thermax India

HSBC has initiated coverage of Thermax India with ‘underweight’ rating and a price target of Rs 400. This is because the company is 21% below consensus on FY13 EPS.

HSBC expects earnings cuts to drive stock lower. Thermax is trading at 33% discount to its historical 12-month forward PE. The recent de-rating seems justified, given the deterioration in its returns and growth prospects.

On FY13 EPS, the stock appears expensive, trading at 18.4x PE vs the sector average of 11.6x.