Edelweiss - Thermax, Crompton Greaves

Edelweiss Research reports on Thermax:

"Thermax’s (TMX) Q4FY07 results were ahead of our expectations in terms of revenue growth and in line with our expectations in terms of profitability. At the consolidated level, while revenues grew by 65% YoY to Rs 8.6 billion, EBITDA grew by 55% YoY to Rs 1 billion in the quarter. Adjusted net profit grew by 74% YoY to Rs 668 million. EBITDA margins in Q4FY07, at 12.4%, were down by 70bps YoY due to higher proportion of low margin business. However, net margins expanded by 40bps YoY due to higher other income in Q4FY07."

"For FY07, while revenues grew by 43% YoY to Rs 23 billion, EBITDA grew by 63% YoY to Rs 2.9 billion and adjusted net profit grew by 94% YoY to Rs 1.9 billion. EBITDA margins, at 12.4%, expanded by 150bps YoY, in line with estimates. Net margins expanded by 230bps YoY basis to 8.6% for the year driven by a lower tax rate and higher other income. The energy segment continued to drive revenue growth, posting a growth of 46% YoY, while the environment segment grew by 32% YoY for the year. Operating margins (EBIT) for the energy segment expanded by 220bps YoY to 13.2% and by 140bps YoY to 12.0% for the environment segment in FY07."

"Order backlog at FY07 end was Rs 31 billion, up 80% YoY. With the boiler production facility in Gujarat likely to commence production by July 2007, we believe capacity constraints in the energy segment are likely to be addressed to a certain extent, thus paving the way for further growth in the order backlog of the energy segment."

"We are revising our consolidated revenue estimates upwards by 11% and 16% to Rs 32 billion and Rs 42 billion for FY08 and FY09, respectively, in the light of strong growth in the energy segment. We are upgrading our margins estimates on the consolidated level due sale of loss-making subsidiaries in FY07. Consequently, our EPS estimates stand revised by 15% and 22% to Rs 24 and Rs 32 for FY08 and FY09, respectively. We believe TMX has strong business fundamentals denoted by improving returns and growth profile. At our current estimates the stock trades at a P/E multiple of 21x and 16x. We continue to maintain our ‘buy’ recommendation."

Edelweiss Research reports on Crompton Greaves:

"Crompton Greaves (CRG) declared strong set of numbers for FY07 standalone and consolidated operations. Parent operations continue to benefit from multi-level demand drivers, overseas operations continue to chart anticipated performance trajectory. With end-to-end solutions portfolio, robust business model and impressive financial metrics, we continue to favour CRG as a prominent Indian MNC play."

"While FY07 standalone revenues were inline at INR 33.7 billion, net profits were 12% ahead of our expectations at INR 1.9 billion on account of cost rationalization through hedging and on staff costs. Higher-than-expected tax rate of 33% for Pauwels resulted in CRG reporting lower net profits of INR 690 million. Recently acquired Ganz, which posted operating losses, however, reported PBT of INR 200 million from one-time gains of INR 400 million."

"Incorporating strong growth for power systems thereby offsetting higher tax charge assumed for Pauwels and with Ganz likely to breakeven in FY08E, we do not foresee any risk to our consolidated EPS of INR 12 and INR 15 for FY08E and FY09E, respectively. At CMP, the stock trades at 21x and 16x FY08E and FY09E earnings, respectively, still at a relative discount to peers (ABB, Siemens). We believe such wide discount is uncalled for as CRG’s performance profile matches up to the best in business and it is now moving to be a total solutions provider with MHL acquisition. We maintain ‘buy’ recommendation."