Strong execution and a move up the value chain are expected to be positive for the company.
The environment division’s revenues jumped 72 per cent in the March quarter after recording a decline of 19 per cent in the nine months of FY10. However, operating profit margins were lower by 200 basis points at 12 per cent. Core net profit at Rs 99 crore was flat, as higher other income and stable fixed costs (read interest and depreciation) were partly negated by higher tax outgo. However, a one-time payment of Rs 115 crore (net of tax) for settling a patent dispute with US-based Purolite International pushed the company into a loss of Rs 16 crore.
Analysts remain optimistic about the company, as it will be moving up the value chain by entering into the super-critical boiler market. Currently, it is a player in the small- and medium-sized boilers. It will be setting up a 3,000-Mw facility. This will get the company revenue traction, even when operating profit margins remain flat.
The order backlog of Rs 5,381 crore saw a jump of 86 per cent over the previous year, though down by a marginal 4 per cent on a quarter-on-quarter basis. The execution is expected to be 60 to 70 per cent of the order book, enabling the company to sustain 30 per cent revenue growth, reckon analysts. The premium valuation at the moment seems justified, as it has a return on equity of 32 to 34 per cent, which is better than that of the market leader BHEL (around 30 per cent). Considering a lower base, and mid-cap stocks being the current flavour, better days are expected for Thermax.