28 July 2015
1QFY16 Results Update | Sector:
Capital Goods
Thermax
BSE SENSEX
27,459
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INRm)/Vol ‘000
Free float (%)
S&P CNX
8,337
TMX IN
119.2
1,315/790
0/0/11
60/58
38.0
n
CMP: INR1,035
n
TP: INR1,275 (+23%)
Buy
Operating performance in-line; intake remains constrained
TMX reported in-line operating performance for 1QFY16. Revenue grew 19% YoY
to INR10b, EBITDA margin expanded 221bp YoY to 9.1%, and net profit grew 49%
YoY to INR617m. Consolidated revenue grew 23.9% YoY to INR12.5b; net profit
grew 234% YoY to INR578m.
The Energy segment reported 25% YoY revenue growth, led by execution of the
Reliance order. The Environment business reported revenue decline of 1.8% YoY,
impacted by constrained intake in the Water segment. EBIT margin in the Energy
business expanded 440bp YoY to 11%. Environment segment EBIT margin
expanded 190bp YoY to 6.4%, largely supported by base effect. Energy segment
margins were impacted, as the Reliance project had not crossed the margin
recognition threshold; Environment segment margins were impacted by losses in
water projects in 1QFY15.
Subsidiary losses
narrowed to just INR39m, the lowest since 3QFY14. This
indicates that losses pertaining to European business have been curtailed and that
execution has possibly improved in Thermax-Babcock JV (received orders of
INR6b+ from Babcock & Wilcox overseas wins).
Standalone
order inflow
in 1QFY16 was just ~INR9b. Domestic intake has
remained constrained at just INR7b-8b in the last 6-7 quarters, reflecting that
activity on the ground is yet to pick up. The order book has shrunk 18% YoY.
M.Cap. (INR b) / (USD b) 123.3/1.9
Financials & Valuation (INR Billion)
Y/E Mar
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
RoE (%)
RoCE (%)
P/E (X)
P/BV (X)
2015 2016E 2017E
53.4
4.6
2.6
21.8
-6.0
12.1
16.3
44.1
5.4
59.7
5.2
3.3
28.1
29.2
194.1
14.5
18.0
36.8
5.3
67.6
6.6
4.4
37.3
32.8
214.6
17.4
21.5
27.7
4.8
n
n
BV/Sh.(INR) 179.3
Estimate change
TP change
Rating change
Valuation and outlook:
We maintain
Buy
with a target price of INR1,275 (30x FY17E
EPS plus INR141/share for subsidiaries).
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Thermax
Operational performance below expectations
n
n
n
n
n
n
TMX 1QFY16 operating performance is in-line, with revenues at INR10b, up 19%
YoY (estimate of INR9.7b) and EBIDTA margins at 9.1%, up 221bps YoY (in-line
with estimates of 9.2%). Net profit at INR617m (up 49% YoY) is in-line with
estimates.
Energy segment reported strong revenue growth at 25%, led by execution of the
Reliance order; while Environment business reported revenue decline of 1.8%
YoY (impacted by constrained intake in water segment).
EBIT margins in energy business have increased to 11% (up 440bps YoY),
environment segment EBIT margins stood at 6.4% (up 190bps YoY). The margin
expansion has been a function of the base effect: Energy segment margins in
1QFY15 were impacted as Reliance order had not crossed the margin
recognition threshold; while Environment segment margins were impacted by
losses in water projects in 1QFY15. As these factors have normalized, the
reported margins have shown a sharp uptick.
Cost analysis for 1QFY16 indicates that RM costs stand at 63.4% (up 190bps
YoY); Other expenses at 16.4% are down 300 bps YoY.
Subsidiary losses have narrowed to just INR39m, and is the lowest run-rate since
3QFY14. These clearly indicate that losses pertaining to European business have
been curtailed; and also possibly improved execution in Thermax-Babcock JV
(received orders of INR6b+ from Babcock & Wilcox overseas wins).
Consolidated revenues stood at INR12.5b (up 23.9% YoY) and profits at
INR578m (up 234% YoY).
Exhibit 2: EBITDA margins at 9.1% are in-line, supported by
base effect
EBITDA (INR m)
EBITDA Margin (%)
Exhibit 1: Standalone Revenues up 19% YoY, led by
strong execution of Reliance order
Revenues (INR b)
Revenue Growth (%) RHS
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: EBIT margins improvement supported by base effect
2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16
Revenues (INR m)
Energy
Environment
Total
EBIT Margin (%)
Energy
Environment
Total
7,851
2,684
10,535
7,671
2,538
10,209
10,968
2,978
13,946
6,446
2,148
8,594
9,562
2,646
12,208
9,208
2,641
11,849
12,518
3,300
15,819
8,039
2,108
10,148
11.7
9.0
11.0
10.9
2.3
8.7
11.2
2.6
9.4
6.5
4.6
6.1
12.2
7.5
11.1
11.5
11.2
11.0
7.3
8.3
6.4
10.5
10.6
10.0
Source: MOSL, Company
28 July 2015
2

Thermax
Exhibit 4: Cost composition
INR m
Raw Materials
Staff Costs
Other Expenses
Total
% of Revenues
Raw Materials
Staff Costs
Other Expenses
% YoY
Raw Materials
Staff Costs
Other Expenses
2QFY14
6,717
1,008
1,772
9,496
3QFY14
6,803
1,039
1,387
9,229
4QFY14
9,102
1,189
2,196
12,486
1QFY15
5,158
1,027
1,632
7,817
2QFY15 3QFY15 4QFY15 1QFY16
7,750
7,402 10,111
6,346
1,137
1,078
1,260
1,111
1,798
1,672
2,263
1,645
10,685 10,152 13,634
9,102
64.4
9.7
17.0
67.1
10.2
13.7
65.8
8.6
15.9
61.4
12.2
19.4
65.1
9.6
15.1
64.6
9.4
14.6
66.5
8.3
14.9
63.4
11.1
16.4
(18)
(5)
19
(3)
6
0
(9)
10
15
3
4
(9)
15
13
1
9
11
23
4
6
8
20
3
1
Source: MOSL, Company
Order intake remains constrained; standalone order book down 18% YoY
n
n
n
n
Standalone Order inflow in 1QFY16 stood at just ~INR9b, and is lower than the
average run-rate at INR10b over the last seven quarters. Order intake is being
supported by standard products in domestic market and project orders in
international market.
Domestic intake has remained constrained at run-rate of just ~INR7-8b in last 6-
7 quarters, reflecting that activity on the ground is yet to pick-up. During 2Q-
3QFY15, standalone intake averaged at INR11-12b/quarter supported by CPP
order wins from Africa of INR6.7b. As there were no large sized overseas project
wins in 1QFY16, intake was impacted.
In domestic market, we understand that barring standard products, there were
no major orders concluded in core segments like oil and gas, power, cement and
steel. Even for 2QFY16, domestic intake outlook from large projects remains
elusive; while demand scenario for mid to smaller sized projects remains stable.
For overseas projects, the supplies are against LCs. Margins in international
projects are similar to domestic margins. Middle East remains constrained given
the sharp decline in crude prices.
Exhibit 6: 1QFY16 order inflows constrained
Standalone order intake
1QFY14 incl
INR13.5b RIL order
Exhibit 5: Stand alone BTB ratio at 0.9x
Order Backlog (INR b)
BTB (x TTM)
Source: MOSL, Company
Source: MOSL, Company
28 July 2015
3

Thermax
Subsidiary performance (adjusted) shows improvement
n
n
For 1QFY16, subsidiaries reported revenues of INR2.5b, up 46% YoY and PAT
loss of just INR395m, vs INR241m YoY.
Subsidiary losses have narrowed to just INR39m, and is the lowest run-rate since
3QFY14. These clearly indicate that losses pertaining to European business have
been curtailed; and also possibly improved execution in Thermax-Babcock JV
(received orders of INR6b+ from Babcock & Wilcox overseas wins).
Exhibit 7: Subsidiaries continue to report losses (INR M)
2QFY14
Consolidated
Total Income
Growth YoY %
PBT
PAT
Growth YoY %
12,331
(11.7)
946
353
(59.6)
3QFY14
12,175
(2.3)
884
623
(17.7)
4QFY14
15,976
(4.9)
1,313
955
(8.7)
1QFY15
10,101
(4.0)
203
173
(67.3)
2QFY15
13,696
11.1
643
369
4.5
3QFY15
13,101
7.6
873
577
(7.3)
4QFY15 1QFY16
17,058
6.8
1,471
979
2.5
12,518
23.9
757
578
233.7
Exhibit 8:
Subsidiaries
performance (Derived, INR m)
Total Income
Growth YoY %
PBT
PAT
2QFY14
1,898
(6.7)
93
51
3QFY14
2,037
2.3
(83)
(44)
4QFY14
2,151
1.6
(190)
(104)
1QFY15
1,706
(9.6)
(386)
(241)
2QFY15
1,788
(5.8)
(605)
(491)
3QFY15 4QFY15 1QFY16
1,635
1,852
2,506
(19.7)
(13.9)
46.9
(336)
(454)
(163)
(185)
(345)
(39)
Source: MOSL, Company
28 July 2015
4

Thermax
Maintain Buy; core portfolio holding
Strong commitment to the core ‘Strategy’ and the journey till date has improved the
investor perception about ‘sustainable superior performance’ and hence premium
valuations. Maintain
Buy
with a 12-month price target of INR1,275 (30x FY17E at
INR1,117/sh and INR141/sh for subsidiaries). Premium valuations are supported by:
i) Expectations of strong 43% earnings CAGR over the next five years, ii) robust FY15
RoCE at 16.3% (in a downcycle), iii) FY15 net working capital at just eight days
(reflecting the bargaining power of the business) and net cash at INR6.2b (up from
INR4.2b in FY14).
Well prepared to capitalize on domestic and global recovery
n
n
n
TMX has created capacities both in terms of manufacturing and manpower, and
is thus prepared to capitalize on the recovery in the investment climate. We
understand that the current capacity utilization in standalone business stands at
80%; excluding the increased levels of in-sourcing, it stands at 65% (as in an
upturn, parts of the manufacturing can be outsourced).
Key factories commissioned in the last few years include chemicals (FY12, at
Jhagadia), air pollution control (FY13, at Solapur) and TMX-Babcock (TBW)
supercritical boiler capacity (~3GW, at Shirwal). TMX has also set up ~0.25msf of
office space as ‘Energy House’ and ‘Environment House’ to house the various
businesses; these modern offices will strengthen the company’s positioning as a
knowledge-driven company. The company is currently working on a capex
program of ~INR4b, comprising manufacturing facility in Indonesia and
chemicals business in India.
Danstoker acquired a boiler manufacturing facility in Denmark on a slump sale
basis; the acquisition was financed by the retained earnings of Danstoker and
the facility is 150kms away from the existing manufacturing plant. In the existing
plant, the capacity utilization was running at optimum levels and land was an
important constraint. Fabrication work has already commenced at the new
facility.
Exhibit 10: Consolidated net cash at comfortable levels
(INR m)
Consolidated Net Cash/ (debt)
Exhibit 9: RoEs impacted, given the underutilization of fixed
assets
Gross Fixed Assets + CWIP (INR M)
33 38
14 17 16
22
29
28
ROE (%)
24
24
17
17 13
12 14
Source: MOSL, Company
Source: MOSL, Company
28 July 2015
5

Thermax
Key operating metrics
Exhibit 11: Key operating metrics (INR m)
INR m
Standalone Order intake
Energy
- Power EPC
- Energy Ex Power EPC
Environment
Order intake (% YoY)
Energy
- Power EPC
- Energy Ex Power EPC
Environment
Standalone Revenues
Domestic (excl Power EPC)
Domestic (Power EPC)
Exports (Excl Deemed)
% YoY
Domestic (excl Power EPC)
Domestic (Power EPC)
Exports
EBIT Margin (%)
Energy
Environment
EPS Composition (INR/Sh)
Standalone
TMX-Babcock JV
Other Subsidiaries
Consolidated
Balance Sheet Details - Standalone
Core Net Working Capital (Days)
Net Working Capital (Days)
Net Cash / (Debt) INR M
RoE (%) Consolidated
FY11
53,180
41,736
15,300
26,436
11,444
-8.3%
-10.0%
-28.5%
5.8%
-1.2%
50,235
25,350
14,225
10,660
54.5%
25.9%
144.0%
62.5%
11.8
10.0
12.6
FY12
40,300
28,830
5,169
23,661
11,470
-24.2%
-30.9%
-66.2%
-10.5%
0.2%
54,360
29,073
13,857
11,430
8.2%
14.7%
-2.6%
7.2%
11.1
10.7
12.4
FY13
48,580
36,550
15,020
21,530
12,030
20.5%
26.8%
190.6%
-9.0%
4.9%
47,693
29,202
8,652
9,839
-12.3%
0.4%
-37.6%
-13.9%
11.0
10.4
10.5
FY14
53,940
46,010
2,800
43,210
7,930
11.0%
25.9%
-81.4%
100.7%
-34.1%
43,022
25,150
6,862
11,010
-9.8%
-13.9%
-20.7%
11.9%
9.7
11.3
5.8
FY15
39,510
29,560
6,720
22,840
9,950
-26.8%
-35.8%
140.0%
-47.1%
25.5%
46,974
32,141
3,913
10,920
9.2%
27.8%
-43.0%
-0.8%
10.1
10.7
8.3
FY16E
46,849
34,909
6,500
28,409
11,940
18.6%
18.1%
-3.3%
24.4%
20.0%
46,749
26,073
9,021
11,655
-0.5%
-18.9%
130.5%
6.7%
10.4
11.0
9.5
FY17E
60,784
47,338
10,000
37,338
13,446
29.7%
35.6%
53.8%
31.4%
12.6%
52,639
31,871
7,365
13,403
12.6%
22.2%
-18%
15.0%
11.1
11.5
10.5
32.1
0.0
-0.1
32.0
34.1
-0.8
0.5
33.9
29.4
-1.3
-1.2
26.9
23.7
-2.3
1.8
23.1
28.2
-5.3
-1.2
21.8
29.6
-3.8
2.2
28.1
37.2
-1.8
1.9
37.3
42.1
-11.9
6,910.2
28.4
27.8
6.6
6,050.3
24.2
31.8
18.5
6,205.7
16.8
57.8
12.8
7,642.7
13.3
40.5
12.0
9,735.5
12.1
41.1
35.6
9.3
-8.0
10,855.1
14,143.0
14.5
17.4
Source: Company, MOSL
28 July 2015
6

Thermax
Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Depreciation
Other Income
Interest
PBT
Tax
Rate (%)
Adjusted PAT
EO Income (net)
Reported PAT
Change (%)
2011
52,472
60.3
34,803
4,547
8,266
5,669
10.8
541
652
45
5,736
1,965
34.3
3,818
0
3,818
169.0
2012
60,313
14.9
38,435
5,578
10,795
5,919
9.8
663
830
122
5,964
2,043
34.3
4,034
0
4,034
5.7
2013
54,331
-9.9
33,157
6,123
10,736
4,982
9.2
771
769
165
4,814
1,773
36.8
3,202
0
3,202
-20.6
2014
50,283
-7.4
28,616
7,019
10,991
4,381
8.7
922
716
274
3,901
1,696
43.5
2,758
0
2,468
-22.9
2015
53,396
6.2
31,377
7,057
10,886
4,635
8.7
1,341
1,209
820
3,683
1,711
46.5
2,592
-494
2,098
-15.0
2016E
59,714
11.8
32,575
7,637
14,851
5,214
8.7
1,287
1,268
615
4,580
1,661
36.3
3,350
0
3,350
59.7
(INR Million)
2017E
67,583
13.2
36,620
9,028
15,912
6,642
9.8
1,361
1,431
600
6,112
1,863
30.5
4,450
0
4,450
32.8
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2011
238
12,911
13,448
1,480
299
15,448
10,678
2,825
7,853
354
2,415
30,370
3,657
10,209
6,880
4,015
5,610
2012
238
16,055
16,671
2,704
378
20,491
11,929
3,488
8,441
2,466
2,395
33,427
3,666
13,707
6,983
3,560
5,512
2013
238
18,449
19,070
4,210
383
24,382
12,962
4,236
8,726
5,175
4,430
31,544
3,240
15,468
3,211
4,125
5,501
2014
238
20,145
20,701
7,387
318
29,484
20,441
5,183
15,258
537
7,079
36,540
4,158
14,685
4,508
4,270
8,919
2015
238
21,226
21,360
5,534
-104
27,675
20,510
6,198
14,312
429
8,217
35,221
3,413
16,730
3,494
4,820
6,764
2016E
238
22,998
23,133
5,442
-104
28,924
22,039
7,485
14,554
400
8,217
37,553
2,986
14,929
2,314
5,382
11,943
(INR Million)
2017E
238
25,440
25,575
5,442
-104
31,165
24,539
8,846
15,693
400
8,217
43,551
3,379
14,192
6,766
5,697
13,517
8,928
3,184
2,782
4,825
15,448
9,690
5,323
2,721
7,190
20,491
9,723
5,275
2,812
6,051
24,382
9,319
6,815
2,668
6,603
29,477
9,492
7,040
3,200
4,716
27,674
11,943
7,453
3,574
5,753
28,924
13,517
8,398
4,039
6,855
31,165
28 July 2015
7

Thermax
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
32.0
36.6
112.9
9.0
32.6
2012
33.9
39.4
139.9
7.0
24.0
2013
26.9
33.3
160.0
7.0
30.5
2014
23.1
30.9
173.7
6.0
33.9
27.0
20.2
16.0
1.4
3.6
1.0
28.4
37.4
71
25
62
3.4
0.1
24.2
29.7
83
22
59
2.9
0.2
16.8
20.4
104
22
65
2.2
0.2
13.3
14.2
107
30
68
1.7
0.4
2015
21.8
33.0
179.3
7.0
47.9
44.1
29.1
23.3
2.0
5.4
0.7
12.1
16.3
114
23
65
1.9
0.3
2016E
28.1
38.9
194.1
11.0
47.1
36.8
26.6
22.7
2.0
5.3
1.1
14.5
18.0
91
18
73
2.1
0.2
2017E
37.3
48.8
214.6
14.0
45.1
27.7
21.2
17.1
1.7
4.8
1.4
17.4
21.5
77
18
73
2.2
0.2
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. Incl. EO Items
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2011
5,736
541
45
1,965
(3,329)
1,028
0
1,028
(3,265)
-2,237
1,289
-1,976
466
1,401
45
695
1,127
178
6,702
6,880
2012
5,964
663
122
2,043
(2,262)
2,442
0
2,442
(3,361)
-919
20
-3,342
1,145
1,224
122
1,246
1,001
102
6,880
6,982
2013
4,814
771
165
1,773
(2,633)
1,345
0
1,345
(3,765)
-2,420
(2,035)
-5,800
320
1,506
165
976
684
(3,771)
6,983
3,211
2014
3,901
922
274
1,696
745
4,146
0
4,146
(2,816)
1,330
(2,649)
-5,464
547
3,178
274
836
2,615
1,297
3,211
4,508
2015
3,683
1,341
820
1,711
873
5,006
-494
4,512
(436)
4,076
(1,138)
-1,426
12
-4,297
820
1,004
(6,108)
(3,022)
4,508
3,494
2016E
4,580
1,287
615
1,661
(2,217)
2,604
0
2,604
(1,663)
941
0
-1,500
0
-92
615
1,577
(2,284)
(1,180)
3,494
2,314
(INR Million)
2017E
6,112
1,361
600
1,863
3,350
9,560
0
9,560
(2,535)
7,025
0
-2,500
0
0
600
2,008
(2,608)
4,452
2,314
6,766
28 July 2015
8

Thermax
Corporate profile: Thermax
Company description
TMX is India's leading Energy and Environment
solutions provider. It is one of the few companies
globally that offers integrated innovative solutions
in the areas of heating, cooling, power, water and
waste management, air pollution control and
chemicals. Overseas business contributed ~32% of
the consolidated revenues in FY14, and the target
is to increase the contribution to 40% in the
medium term. Intent is that new products
launched in last five years should contribute 33% of
the revenues, and thus being repositioned as
innovation led company.
Exhibit 12: Sensex rebased
1,350
1,200
1,050
900
750
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Thermax
Sensex - Rebased
Exhibit 13: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
62.0
7.5
15.8
14.8
Mar-15
62.0
7.7
15.7
14.7
Jun-14
62.0
7.6
15.4
15.0
Exhibit 14: Top holders
Holder Name
Matthews Pacific Tiger Fund
Arnavaz Rohinton Aga
LIC of India
Amansa Holding Pvt Ltd
Matthew India Fund
Goldman Sachs India Fund Ltd
% Holding
4.5
2.4
1.5
1.4
1.3
1.3
Note: FII Includes depository receipts
Exhibit 15: Top management
Name
Meher Pudumjee
M S Unnikrishnan
Amitabha Mukhohadhyay
Designation
Chairperson
Managing Director & CEO
EVP & CFO
Exhibit 16: Directors
Name
Meher Pudumjee
M S Unnikrishnan
Pheroz Pudumjee
Tapan Mitra*
Nawshir Mirza*
*Independent
Name
Valentin Von Massow*
Raghunath A Mashelkar*
Anu Aga
Jairam Varadaraj*
Exhibit 17: Auditors
Name
B K Khare & Co
Dhananjay V Joshi & Associates
Type
Statutory
Cost Auditor
Exhibit 18: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
28.1
37.3
Consensus
forecast
27.1
35.1
Variation
(%)
3.6
6.2
28 July 2015
9

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Thermax
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THERMAX
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