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Reduce Thermax Ltd

May 24, 2008

Thermax’s Q4FY08 results were in line with expectations. At the consolidated level, revenues grew ~19% Y-o-Y to ~INR 10 bn, driven by better performance of the company‚Äôs subsidiaries. Standalone revenues grew ~13% Y-o-Y to ~INR 9 bn.

During the quarter, the energy business segment grew ~12% Y-o-Y, whereas the environment business grew ~7% Y-o-Y. The energy segment contributed ~77% to revenues with the balance being contributed by the environment segment. Consolidated EBITDA margins were up ~100bps Y-o-Y to 13.4% driven by higher margins in the energy business segment.

For FY08, consolidated revenues grew ~50% Y-o-Y to ~INR 35 bn and consolidated EBITDA margin was flat Y-o-Y at 12.3%. Thermax’s consolidated order backlog at the end of FY08 was ~INR 26 bn, with ~81% being contributed by the energy segment. The company is cautiously optimistic on captive power plants order flow as electricity tariff’s firm up and coal linkages are now being extended to smaller power plants as well.

The company is expected to report an EPS of Rs 29 and Rs 36 for FY09 and FY10 respectively.The recent spell of monetary policy tightening has impacted the order accretion over the past two quarters. Further increase in raw material prices is likely to impact margins in the medium term. We recommends investors to REDUCE and not BUY in the medium term.

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