We maintain our buy rating on Thermax Ltd with an 18-month price target of R850 per share (20x FY16e at R762 per share and R86 per share in subsidiaries). At the current market price of Rs 690,the stock trades at price-to-earnings (P/E) of 27.3x FY14e,23.4x FY15e and 17.5x FY16e. Our top picks in capital goods segment are Larsen & Toubro,Thermax,Cummins. We recently upgraded Bharat Heavy Electricals Ltd (BHEL) to buy and believe the risk-reward is favourable.
Coal-fired boilers installed by Thermax at Essar Oils refinery have completed one year of working at rated conditions. This is an important milestone the company given that this is the highest capacity boiler (750 TPH) and first pulverised coal fired system from Thermax,according to Thermaxs in-house magazine FireSide highlighting milestones achieved by its business divisions.
Essar Refinery is the first in India and among a few in Asia to set up coal fired boilers for steam and power requirements. This is expected to result in increasing the refining margins by ~$1 per barrel. We believe this success can be an important trend setter,particularly in the refinery and petchem segment.
Thermax has been honored with the Best Innovator Award 2013 by the Biotechnology Research Assistance Council,Govt of India. Further,as part of the indigenization program for Indian Navy,Thermax has successfully developed Burners for the boilers of the fighter aircraft carrier,INS Viraat. This is an important milestone and 1,000 hours of on-board initial sea runs were logged in to get the final approvals.