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Thermax - stock update

Result Update: Thermax
• Third quarter numbers are in line with our as well as street expectations. The company had started the year with lower order backlog which is resulting in moderate growth.
• EBITDA margins have been maintained.
• Order book declines sequentially reflecting challenging macro environment for capitl goods companies. Sharp drop in sequential order inflows.
• Company admits that large players are on a wait and watch so far as committing major investments is concerned.
• Stock trading at cheap valuations of 7.0x and 6.4x FY09 and FY10 earnings respectively. Dividend yield is attractive at 5%.
• The stock has seen very sharp correction over the previous quarter on fears of significant scaleback of capex plans by Indian Industry.
• At the current price, the stock is to a large extent building in the likely downtrend in order inflows over the coming quarters, in our opinion.
• Even assuming a fairly pessimistic growth scenario over the next couple of years, our DCF based target price works out to Rs 230 (Rs 350 earlier). However, given the subdued near-to-medium term business outlook for capital goods manufacturers, we maintain our cautious stance and recommend "ACCUMULATE".
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