Motilal Oswal is bullish on Thermax (TMX) and has recommended buy rating on the stock with a target of Rs 770 in its January 24, 2013 research report.
“We expect Thermax (TMX) to report acceleration in revenue growth, driven by improvement in GFCF (particularly in base industries) and interplay of several structural trends. The company's revenues have been largely stagnant over FY11-13, impacted by macroeconomic volatility, and we expect 15% CAGR over FY13- 15. While exports would grow at 27% CAGR, the domestic business is likely to grow at 11% CAGR (given the constrained investment climate). Quarterly order intake has bounced back to normalized levels of INR13b-14b and we expect a gradual pick-up in the domestic market, largely driven by new product introductions. Margins remain the key swing factor, given the increased competitive intensity. We estimate margins at 10.7% for FY15 (up 59bp since FY13), supported by increased contribution of exports, lower share of project business, and focus on productivity improvement / cost reduction initiatives.”
“Net working capital (NWC) has deteriorated meaningfully from 3 days in September 2011 to 15 days in September 2012, given increased debtors. Despite the constrained environment, TMX has been able to maintain NWC in a tight range, which is commendable and indicates strict preference for cash flows. We expect further deterioration to 17 days in March 2013, sustaining at 16 days in FY14. We expect meaningful improvement in FY15, with NWC declining to 3 days, given the expected improvement in investment climate, and hence, customer advances.”
“We believe TMX is uniquely positioned to benefit from the current trends, which will enable it to make a transition to the 'Big League' in the next economic upturn. We expect TMX to report earnings CAGR of 22% over FY12-15. The stock quotes at 20x FY14E and 15x FY15E EPS. We upgrade the stock to Buy, with an upgraded price target of INR770 (upside of 33%),” says Motilal Oswal research report.
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