Thermax is a global solutions provider in energy and environment engineering. It offers products and services in heating, cooling, waste heat recovery, captive power, water treatment and recycling, waste management and performance chemicals. The company exports across the globe and recently opened manufacturing operations in China.
The order backlog of the Thermax group stood at Rs 2637 crore end March 2008 compared with Rs 3100 crore in the corresponding period of the previous year. Order intake in the first three quarters of the year ending March 2008 (FY 2008) slowed down, especially in the captive power segment, which was affected by combination of factors such as higher global coal prices, restriction on captive coal linkages for captive power plants with capacity less than 25 MW, and lower grid prices. However, order intake in the fourth quarter of FY 2008 picked up momentum. The order intake of the Thermax group was up by 12% to 731 crore in Q4 FY 2008 and that of Thermax standalone 9.2% to Rs 710 crore compared with the corresponding period a year ago.
The order intake picked up further in the first quarter of FY 2009. Order intake was higher by 46% in the quarter compared with Q1 of FY 2008. Order booking for Thermax standalone was Rs 914 crore in the first quarter. The share of energy was Rs 740 crore and that of environment Rs 117 crore. The consolidated order intake was Rs 964.4 crore, of which the share of energy was Rs 791 crore and that of environment Rs 174 crore. The company’s orders on hand were Rs 2649 crore end June 2008 compared with Rs 2435 crore at the beginning of the financial year.
Hikal received two major orders in the quarter ending September 2008. Its orders in the current quarter included an order of Rs 410 crore from a leading steel maker for setting up a captive power plant for its upcoming blast furnace complex on an engineering, procurement and contract (EPC) basis. It received another huge order from a major refinery to supply pulverised coal fired boilers for their captive cogeneration plant. This order is worth Rs 820 crore and is the single largest order ever for the company. On inclusion of the above two orders, the second quarter will show a strong sequential growth in order inflow and order backlog.
Soaring prices of conventional fuels used for running Diesel Generator (DG) sets, high cost of power supplied by state electricity boards and a favorable policy environment have prompted power-intensive industries to opt for captive generation. Huge shortage in the power industry and capacity expansion across industries will also drive demand for captive power plants, which are more economical and a reliable source of power. Thermax is well placed to leverage on the strong growth in the industry considering its proven technology to generate power from nearly 60 different kinds of fuels (like agri-waste and coal). It is a leading player in the captive power generation systems and undertakes EPC contracts for up to 135 MW power plants.
In the services segment, Thermax provides facility energy management services (FEMS), which basically conducts energy audits for process industries as mandated by the Bureau of Energy Efficiency. In addition to this, Thermax is also targeting the operations and maintenance (O&M) services for its captive and cogen plants. This segment is a recent addition to the portfolio. There is a huge potential for O&M services of power plants as the strategy enables clients to focus on their core business.
Thermax has entered into a 15-year agreement with Babcock & Wilcox Power Generation Group to manufacture and supply utility boilers up to 800 MW. Currently, Bhel is the only major utility power generating equipment maker in the country with a 65% market share. However, in the next few years, there would emerge three-four players including Thermax in the power generating equipment sector in India.
We expect Thermax to register EPS of Rs 26.5 in FY 2009. This is likely to rise to Rs 35.4 in FY 2010. The share price trades at Rs 416. P/E works out to just 11.7.
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