1. Healthcare

Results Review
INDIA
CAPITAL GOODS
30 January 2015
SELL
Thermax
TP: INR 940.00
 17.9%
TMX IN
Valuations ahead of fundamentals; d/g to SELL
TMX’s Q3 results (sales/PAT at Rs 11.5bn/Rs 762mn; +13%/+14% YoY) were
in line with estimates. Order inflows for the quarter were relatively strong
(Rs 12.3bn) after weak order inflows through H1FY15. We note that while the
results and order inflows are strong, our estimates factor in the same and
also a gradual pick-up in the investment cycle through FY16/FY17E. We
REPORT AUTHORS
Misal Singh
believe, current valuations are expensive given TMX’s expected returns and
growth profile. Maintain TP, however downgrade to SELL (from HOLD).
+91 22 6766 3466
[email protected]
Abhishek Raj
 Execution pick-up supports revenue growth: TMX clocked a revenue growth of
13%/9% YoY for Q3FY15/9MFY14 on a likely pick-up in execution in the Rs 17bn
CFBC boiler order from the petrochem sector. Revenue booking in the energy
segment was up by 20% YoY and that in the environment segment by 4% YoY.
+91 22 6766 3485
[email protected]
 Lower input costs aid EBITDA margins: EBITDA margins expanded 250bps YoY to
11.5% as input costs came off on lower commodity prices. Gross margins for the
quarter improved 250bps YoY to 35.4%. EBITDA margins for the energy segment
expanded 60bps YoY to 11.5% and that for environment segment 500bps YoY to
7.3% (off a low base).
 International order booking aid inflows: During Q3FY15, TMX booked a CPP order
worth Rs 3.51bn for a cement plant in Africa, which supported order inflows of
Rs 12.3bn (-10% YoY) during the quarter. Implied order book at Q3FY15-end stands
at Rs 51bn (-11% YoY) and that for the group at Rs 62bn (-4% YoY).
 Losses in subsidiaries narrow down: Pro-forma losses in subsidiaries contracted
sequentially to Rs 185mn in Q3 (from Rs 491mn in Q2FY15 and Rs 241mn in
Q1FY15). While consolidated sales for Q3 were up 8% YoY, consolidated PAT was
down 7% YoY, possibly on continued losses in Thermax (Zhejiang) Cooling & Heating
Engineering and B&W JV.
PRICE CLOSE (30 Jan 15)
INR 1,145.20
MARKET CAP
INR 136.5 bln
USD 2.2 bln
SHARES O/S
119.2 mln
FREE FLOAT
33.9%
3M AVG DAILY VOLUME/VALUE
0.1 mln / USD 1.2 mln
52 WK HIGH
52 WK LOW
INR 1,232.95
INR 615.00
Financial Highlights
Y/E 31 Mar
FY13A
FY14A
FY15E
FY16E
FY17E
Revenue (INR mln)
54,917
50,999
54,441
60,972
65,474
EBITDA (INR mln)
4,902
4,373
4,571
6,101
7,360
1,170
Adjusted net profit (INR mln)
3,201
2,460
2,924
4,002
4,750
970
26.9
20.6
24.5
33.6
39.9
770
(20.7)
(23.2)
18.8
36.9
18.7
570
DPS (INR)
7.0
6.0
6.0
6.0
6.0
ROIC (%)
12.0
7.2
7.7
11.6
14.7
Adjusted ROAE (%)
18.3
12.6
13.6
16.6
17.2
Adjusted P/E (x)
42.6
55.5
46.7
34.1
28.7
EV/EBITDA (x)
27.0
31.4
30.5
22.3
18.2
7.3
6.7
6.1
5.3
4.6
(INR)
Adjusted EPS (INR)
Adjusted EPS growth (%)
P/BV (x)
370
Stock Price
Index Price
29,400
24,400
19,400
14,400
Source: Company, Bloomberg, RCML Research
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
SELL
Thermax
TP: INR 940.00
 17.9%
TMX IN
Results Review
INDIA
CAPITAL GOODS
Result highlights
Fig 1 - Quarterly performance, Standalone
(Rs mn)
Net sales
Q3FY15A
Q3FY14
YoY
Q2FY15A
QoQ
9MFY15
9MFY14
YoY
11,466
10,138
13.1%
11,908
(3.7%)
31,767
29,199
8.8%
Less: Direct Cost
7,402
6,803
8.8%
7,750
(4.5%)
20,310
18,546
9.5%
Staff Cost
1,078
1,039
3.8%
1,137
(5.2%)
3,243
3,038
6.8%
Other Expenses
Expenditure
Operating profit
Other income
Interest
1,672
1,387
20.5%
1,798
(7.0%)
5,101
4,956
2.9%
10,152
9,229
10.0%
10,685
(5.0%)
28,654
26,539
8.0%
1,314
909
44.6%
1,222
7.5%
3,113
2,659
17.1%
71
229
(69.1%)
232
(69.4%)
494
386
28.0%
19
23
(16.6%)
24
(21.1%)
73
50
46.6%
156
147
6.3%
182
(14.1%)
488
430
13.6%
PBT
1,209
968
25.0%
1,248
(3.1%)
3,046
2,566
18.7%
Tax
447
301
48.5%
388
15.3%
1,010
1,095
(7.8%)
37%
31%
18.8%
31%
19.0%
33%
43%
(22.3%)
762
667
14.3%
860
(11.4%)
2,036
1,471
38.4%
Depreciation
Extraordinary (income)/loss
Tax rate %
Reported PAT
Adj. PAT
762
667
14.3%
860
(11.4%)
2,036
1,761
15.6%
11.5%
9.0%
250 bps
10.3%
119 bps
9.8%
9.1%
69 bps
PAT margin (%)
6.6%
6.6%
7 bps
7.2%
(58 bps)
6.4%
6.0%
6.3%
RM Costs as % of Sales
65%
67%
(255 bps)
65%
(52 bps)
63.9%
63.5%
42 bps
Staff Costs as % of Sales
9%
10%
(84 bps)
10%
(15 bps)
10.2%
10.4%
(19 bps)
Other Costs as % of Sales
15%
14%
89 bps
15%
(52 bps)
16.1%
17.0%
(91 bps)
EBITDA margin (%)
Source: Company, RCML Research
Fig 2 - Segmental performance, Standalone
(Rs mn)
Q3FY15A
Q3FY14
YoY
Q2FY15A
QoQ
9MFY15
9MFY14
YoY
Energy
9,208
7,671
20.0%
9,562
(3.7%)
25,216
21,860
15.4%
Environment
2,641
2,538
4.1%
2,648
(0.3%)
7,437
7,619
(2.4%)
384
71
439.8%
301
27.6%
884
281
214.6%
11,466
10,138
13.1%
11,910
(3.7%)
31,769
29,199
8.8%
Less: Inter segment rev
Net revenue
EBIT
Energy
EBIT margin (%)
Environment
1,056
832
26.9%
1,182
(10.7%)
2,660
2,486
7.0%
11.5%
10.9%
62 bps
12.4%
(89 bps)
10.5%
11.4%
(83 bps)
193
59
229.4%
189
2.3%
480
515
(6.8%)
EBIT margin (%)
7.3%
2.3%
500 bps
7.1%
18 bps
6.5%
6.8%
(30 bps)
Total EBIT
1,249
891
40.2%
1,371
(8.9%)
3,140
3,001
4.6%
6,067
1,780
240.9%
6,833
(11.2%)
6,067
1,780
240.9%
Capital employed
Energy
Environment
3,439
3,403
1.0%
3,441
(0.1%)
3,439
3,403
1.0%
Unallocated
12,660
14,766
(14.3%)
11,237
12.7%
12,660
14,766
(14.3%)
Total
22,165
19,949
11.1%
21,511
3.0%
22,165
19,949
11.1%
Source: Company, RCML Research
30 January 2015
Page 2 of 6
SELL
Thermax
TP: INR 940.00
 17.9%
TMX IN
Results Review
INDIA
CAPITAL GOODS
Fig 3 - Order book trend
(Rs bn)
Fig 4 - Order inflow trend
Standalone
(Rs bn)
Subsidiaries
70
30
60
25
50
Standalone
Subsidiaries
20
40
15
30
Source: Company, RCML Research
Source: Company, RCML Research
Fig 5 - Segmental margin, %
Fig 6 - Consolidated performance
Energy
(Rs mn)
Environment
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q4FY13
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
0
Q2FY14
0
Q1FY14
5
Q4FY13
10
Q1FY14
10
20
Adj. PAT margin (R)
Sales
4%
5,000
2%
0
0%
Source: Company, RCML Research
Q3FY15A
Q2FY15A
Q1FY15A
Q4FY14A
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
0%
Q3FY15A
4%
Q2FY15A
10,000
Q1FY15A
8%
Q4FY14A
6%
Q3FY14
15,000
Q2FY14
12%
Q1FY14
8%
Q4FY13
20,000
Q3FY13
16%
Source: Company, RCML Research
30 January 2015
Page 3 of 6
SELL
Thermax
TP: INR 940.00
 17.9%
TMX IN
Results Review
INDIA
CAPITAL GOODS
Per Share Data
Y/E 31 Mar (INR)
FY13A
FY14A
FY15E
FY16E
FY17E
Reported EPS
26.9
20.6
24.5
33.6
39.9
Adjusted EPS
26.9
20.6
24.5
33.6
39.9
7.0
6.0
6.0
6.0
6.0
156.8
171.1
188.6
215.2
248.0
FY13A
FY14A
FY15E
FY16E
FY17E
2.4
2.7
2.6
2.2
2.0
EV/EBITDA
27.0
31.4
30.5
22.3
18.2
Adjusted P/E
42.6
55.5
46.7
34.1
28.7
7.3
6.7
6.1
5.3
4.6
FY13A
FY14A
FY15E
FY16E
FY17E
EBITDA margin
8.9
8.6
8.4
10.0
11.2
EBIT margin
7.5
6.8
6.5
8.2
9.4
Adjusted profit margin
5.8
4.8
5.4
6.6
7.3
Adjusted ROAE
18.3
12.6
13.6
16.6
17.2
ROCE
10.9
6.7
6.5
9.0
10.5
DPS
BVPS
Valuation Ratios
Y/E 31 Mar (x)
EV/Sales
P/BV
Financial Ratios
Y/E 31 Mar
Profitability & Return Ratios (%)
YoY Growth (%)
Revenue
(9.8)
(7.1)
6.8
12.0
7.4
EBITDA
(17.2)
(10.8)
4.5
33.5
20.6
Adjusted EPS
(20.7)
(23.2)
18.8
36.9
18.7
55.2
24.9
(3.1)
2.6
2.2
Invested capital
Working Capital & Liquidity Ratios
Receivables (days)
103
105
105
105
105
Inventory (days)
38
47
51
51
52
Payables (days)
71
75
72
71
71
Current ratio (x)
1.3
1.5
1.5
1.6
1.7
Quick ratio (x)
0.1
0.2
0.2
0.3
0.4
Gross asset turnover
4.4
3.1
2.6
2.9
3.0
Total asset turnover
1.1
0.9
0.9
0.9
0.9
25.0
12.6
12.0
17.2
21.0
0.1
0.1
0.0
(0.1)
(0.2)
FY13A
FY14A
FY15E
FY16E
FY17E
66.5
63.2
70.2
68.5
67.3
116.5
112.8
117.6
117.1
114.7
Turnover & Leverage Ratios (x)
Net interest coverage ratio
Adjusted debt/equity
DuPont Analysis
Y/E 31 Mar (%)
Tax burden (Net income/PBT)
Interest burden (PBT/EBIT)
EBIT margin (EBIT/Revenue)
7.5
6.8
6.5
8.2
9.4
Asset turnover (Revenue/Avg TA)
113.7
93.3
88.2
91.2
90.5
Leverage (Avg TA/Avg equities)
276.2
279.7
288.0
278.0
262.3
18.3
12.6
13.6
16.6
17.2
Adjusted ROAE
30 January 2015
Page 4 of 6
SELL
Thermax
TP: INR 940.00
 17.9%
TMX IN
Results Review
INDIA
CAPITAL GOODS
Income Statement
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
Total revenue
54,917
50,999
54,441
60,972
65,474
EBITDA
4,902
4,373
4,571
6,101
7,360
EBIT
4,131
3,451
3,544
4,988
6,156
Net interest income/(expenses)
(165)
(274)
(295)
(290)
(294)
849
716
918
1,141
1,197
Other income/(expenses)
Exceptional items
0
0
0
0
0
4,814
3,893
4,167
5,839
7,060
(1,773)
(1,696)
(1,785)
(2,195)
(2,430)
0
0
0
0
0
161
262
541
358
120
3,201
2,460
2,924
4,002
4,750
0
0
0
0
0
3,201
2,460
2,924
4,002
4,750
FY13A
FY14A
FY15E
FY16E
FY17E
9,723
9,319
10,222
11,145
11,616
12,417
15,811
17,343
18,910
19,707
Provisions
2,812
2,668
2,668
2,668
2,668
Debt funds
4,210
7,387
7,387
7,387
7,387
Other liabilities
924
2,457
2,457
2,457
2,457
Equity capital
238
238
238
238
238
Reserves & surplus
18,449
20,145
22,232
25,397
29,311
Shareholders' fund
18,687
20,383
22,470
25,636
29,549
Total liabilities and equities
49,875
59,421
64,014
69,742
75,000
3,211
4,508
7,503
10,066
13,466
15,467
14,685
15,676
17,557
18,853
3,240
4,158
4,561
4,973
5,182
11,174
17,904
18,634
20,020
20,976
EBT
Income taxes
Extraordinary items
Min. int./Inc. from associates
Reported net profit
Adjustments
Adjusted net profit
Balance Sheet
Y/E 31 Mar (INR mln)
Accounts payables
Other current liabilities
Cash and cash eq.
Accounts receivables
Inventories
Other current assets
Investments
0
0
0
0
0
Net fixed assets
8,727
15,265
14,738
14,225
13,621
CWIP
5,175
537
537
537
537
Intangible assets
0
0
0
0
0
Deferred tax assets, net
0
0
0
0
0
Other assets
2,881
2,364
2,364
2,364
2,364
Total assets
49,875
59,421
64,014
69,742
75,000
Cash Flow Statement
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
Net income + Depreciation
3,972
3,381
3,951
5,115
5,954
Interest expenses
(683)
(442)
(623)
(851)
(903)
0
0
0
0
0
(1,566)
(1,371)
311
(1,189)
(1,194)
Non-cash adjustments
Changes in working capital
Other operating cash flows
0
0
0
0
0
1,723
1,569
3,639
3,075
3,856
(3,742)
(2,849)
(500)
(600)
(600)
0
0
0
0
0
Other investing cash flows
(1,122)
518
0
0
0
Cash flow from investing
(4,865)
(2,331)
(500)
(600)
(600)
0
Cash flow from operations
Capital expenditures
Change in investments
Equities issued
0
0
0
0
Debt raised/repaid
1,506
3,178
0
0
0
Interest expenses
683
442
623
851
903
(836)
Dividends paid
(976)
(836)
(836)
(836)
Other financing cash flows
(1,842)
(724)
70
73
77
Cash flow from financing
(629)
2,060
(144)
88
144
(3,771)
1,297
2,995
2,563
3,400
3,211
4,508
7,503
10,066
13,466
Changes in cash and cash eq
Closing cash and cash eq
30 January 2015
Page 5 of 6
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section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”). Pursuant to
regulations 33, 34, 35 and 36 of the Financial Advisers Regulations (the “FAR”), sections 25, 27 and
36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to RCMS when providing
any financial advisory service to an accredited investor, or “overseas investor” (as defined in
regulation 36 of the FAR). Persons in Singapore should contact RCMS in respect of any matters
arising from, or in connection with this publication/communication. In Hong Kong, it is being
distributed by Religare Capital Markets (Hong Kong) Limited (“RCM HK”), which is licensed and
regulated by the Securities and Futures Commission, Hong Kong. In Australia, it is being distributed
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Bartleet Mallory Stockbrokers, which is licensed under Securities and Exchange Commission of
Sri Lanka. If you wish to enter into a transaction please contact the RCM entity in your home
jurisdiction unless governing law provides otherwise. In jurisdictions where RCM is not registered or
licensed to trade in securities, transactions will only be effected in accordance with applicable
securities legislation which may vary from one jurisdiction to another and may require that the trade
be made in accordance with applicable exemptions from registration or licensing requirements.
Religare Capital Markets does and seeks to do business with companies covered in our research
report. As a result, investors should be aware that the firm may have a conflict of interest that could
affect the objectivity of research produced by Religare Capital Markets. Investors should consider
our research as only a single factor in making their investment decision.
Any reference to a third party research material or any other report contained in this report represents
the respective research organization's estimates and views and does not represent the views of RCM
and RCM, its officers, employees do not accept any liability or responsibility whatsoever with respect
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Special Disclosures (if applicable)
Not Applicable
The information, tools and material presented in this report are provided to you for information
purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or
to buy or subscribe for securities or other financial instruments. RCM has not taken any steps to
ensure that the securities referred to in this report are suitable for any particular investor. RCM will
30 January 2015
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