Broker's call: Thermax (Add)

| Updated on August 28, 2019

ICICI Securities

Thermax (Add)

CMP: ₹1,006.8

Target: ₹1,089

Challenging macro environment: Impacted by the overall slowdown in private capex and lack of any major near-term investments in the core sectors, Thermax’s domestic order intake outlook is not too bright. However, finalisation of flue gas de-sulphurisation (FGD) projects by NTPC, DVC and a few state governments will cap any major decline in orders. Medium-sized orders from overseas — especially Africa, South-East Asia or the Middle East – can offset the lack of core sector ordering in the domestic market.

Against the backdrop of a challenging demand environment, near-term order intake growth for Thermax will remain under stress. However, the company caters to a diverse subset of segments in terms of both business verticals and geographies, and this is expected to stand it in good stead. Management is not pulling back any of its expansion plans and is confident of achieving its medium- to long-term targets in South-East Asia and from capacity expansions in chemicals and vapour absorption segments.

Given the near-term demand challenges, we trim our earnings estimates by 1 per cent and 7 per cent for FY20E and FY21E respectively. Maintain ADD with a revised target price of ₹1,089 (previously ₹1,177).

Published on August 29, 2019

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