Stock Recommendations



Thermax Ltd (TMX) is a leading energy and environment solutions provider engaged in the business of manufacture and sale of boilers, heating and cooling equipment, industrial chemicals, and water & waste management equipment. The company operates through two segment: Energy and environment. The energy segment includes products such as boilers and heaters, absorption chillers/heat pumps, power plants, solar equipments, and related services. The environment segment includes products such as air pollution control equipments/systems, water and waste recycle plant, ion exchange resins and performance chemicals, and related services. Company’s presence spans 75 countries across Asia Pacific, Africa and the Middle East, CIS countries, Europe, USA and South America. The group consists of 5 wholly owned domestic subsidiaries, 20 wholly owned overseas subsidiaries and 2 joint ventures.

In Q2FY18, Thermax’s standalone order book grew by 23% YoY to Rs4,819cr (which is 10 quarter high) supported by an order inflow of Rs1,185cr (8% YoY growth). Domestic order inflow grew by 20% supported by orders from cement, steel, refinery, textile & food industry. On a consolidation basis order inflow & order book grew by 14% & 24% respectively. During the quarter the company has won a USD 43mn order from a cement company in UAE which provide traction in international orders. Additionally, orders from consumption oriented sectors like food processing, pharma, light engineering & auto ancillary will also drive the order inflow and we expect order book to grow by 24% CAGR over FY17-19E. However, TMX’s standalone revenue registered a marginal de-growth of 0.8% YoY to Rs864cr mainly to due GST led hiccups while booking of deferral export revenue of Rs30cr in Q2FY18 limited the fall. Revenue from Energy & environment segment de-grew by -10% YoY & -4% respectively due to lower carry forward orders to FY18. While revenue from chemical business grew by 27% YoY to Rs108cr. Despite, a fall in gross margin by 271bps YoY EBITDA margin improved by 109bps YoY to 10% due to decrease in other expenses by 21%.

The company remain positive on chemical business and the production is expected to ramp up with the operation of new chemical factory in Dahej, which increased resin capacity to 22,000 m3 from the current capacity of 10,000 m3. We expect revenue to grow at a CAGR of 9% over FY17-19E. We expect margins to improve on account of pick up in execution and operational efficiency. Therefore, we increased FY19E PAT estimate by 5%.

A gradual pick up in order inflow from core sector is giving opportunity for future bidding. We expect order inflow to grow at a CAGR of 27% over FY17-19E. We value subsidiaries/JV business on SOTP basis at 1x times P/B and Thermax standalone business at 33x FY19E earnings and revise higher our rating to ‘Accumulate’.

Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd., SEBI Registration Number: INH200000345

General Disclosures and Disclaimers: Thermax Ltd 


Bharat Forge Limited (BFL) is a Pune-based Indian multinational company involved in automotives, power, oil and gas, construction & mining, locomotive, marine and aerospace industries. The company has made a strong foray into the defence and aerospace sectors and is moving from being a components manufacturer to a complete product maker. Currently Bharat Forge has manufacturing operations in four locations: Mundhwa, Satara, Baramati, Chakan. BFL’s “bread and butter” products include front axle beams, steering knuckles, connecting rods and crankshafts. As part of its risk mitigation efforts, BFL diversified into a variety of industrial sectors including oil & gas, infrastructure, and marine. It is aiming to double its revenues by 2020.  It is part of the Kalyani Group, which is a USD $2.5 billion conglomerate with 10,000 global work force. Amit Kalyani, Baba Kalyani’s son, is the Executive Director of the company.

Q2FY18 revenue grew by robust 41.2YoY, largely due to better traction from the US class 8 heavy truck segments and non auto export business (Oil & gas). Export revenue grew by 56%YoY and domestic sales grew by 27%YoY due to strong growth in all geographies and business segments. The overall volume rose by 27%YoY to 58,659 tonnes during the quarter. BFL’s realisation per tonne rose by 21%YoY due to better product & geographical mix. PAT grew by 61%YoY.

We expect the meaning full recovery in the energy sector and traction from the US Class 8 trucks markets continues to build in CY 2018-19. The domestic M&HCV segment in Q2FY18 has registered a strong growth of 65% after a tepid Q1FY18, indicative stability returning post the disruption post the disruptions of BS-4 roll out and GST implementation. We expect the domestic CV market to witness substantial growth focussing on Government infrastructure investment coupled with stricter implementation of overloading ban and overall uptick in economy. The management expects the incremental revenue from new business/products to grow from current 5% of sales to 16% in next 2-3 years. We expect 18% consolidated revenue CAGR over FY17-19E.

BFL is setting up Centre for light weighting technology (LWT), a fully automated manufacturing facility in Andhra Pradesh focussed on Aluminium and Magnesium and components products. The facility will design and manufacture for Automotive and industrial application and commence commercial production by end of FY 2019. The facility will enable BFL to address the need for light weighting solutions driven by the shift from BS-IV to BS-VI in India and also the evolving Electric Vehicle segment. BFL is the global leader in the Aluminium forging will be the preferred choice of OEM for any technological change.

At CMP, BFL is trading at P/E of 41x/30x on FY18E/FY19E EPS respectively. De-risking the utilization in non auto segment and ramp up of PV sales will support growth. We marginally upgrade our revenue & PAT estimate for FY19 by 3%/5% respectively by factoring higher export revenue growth. We expect the earning to grow by 40% CAGR over FY17-19E. We value at 33x FY19E EPS and maintain Buy rating’ with a revised target price of Rs 792.

Analyst: Saji John, Geojit Financial Services Ltd., SEBI Registration Number: INH200000345

General Disclosures and Disclaimers: Bharat Forge 

Finolex Cables Ltd (FCL) is India’s one of the largest manufacturers of electrical (85% of revenue) & telecommunication cables (9%). Its other products segments include CFL’s, LED lamps, electrical switches and fans. In a market characterized by fierce competition, Finolex is a major player in the cables market and has become a brand with excellent top of mind recall. Two factors that define the brand ‘Finolex’ have been its quality consciousness and marketing initiatives. In order to maintain technical superiority and quality, FCL’s strategy to employ backward integration of key inputs like copper rods and optic fibre, has played out well in terms of quality and in delivering stable margins even during the slowdown. FCL has a strong distribution network of 3,500 plus dealers, mainly focused in South/West India. FCL’s current focus is expand its product portfolio beyond cables to include fans & switchgears and to simultaneously to ramp up its existing sales of LED lighting products and lighting fixtures in a phased manner.

FCL’s H1FY18 revenue grew by 19% YoY, led by strong growth in communication cables which grew by 25% YoY & Electric cables 16% YoY. FCL witnessed strong volume growth in communication cables business while electric cables volumes was impact by higher commodity prices. Further, the higher tax incidence under GST of 28% versus earlier average rate of 19% has also impacted the volumes in Electric cables, water heaters, Fans and switchgears. The implementation of RERA and slowdown in real estate sector continue to impact overall volume growth.

Gross margins declined by 250bps YoY to 27.0% largely due to delay in pass through of higher raw material cost. However, the decline in EBITDA margins was limited by 120bps YoY to 15.2% due to cost savings. The EBITDA grew by 10% YoY to Rs209cr. PAT grew by 17% YoY to Rs209cr led by higher other income, which grew by 24% YoY.

The recently concluded GST council meet has reduced the tax rates of cable & wires from 28% to 18% which is expected to reduce the hardship faced by organized players like FCL. Going forward, we expect the demand to pick-up led by restocking and we factor a revenue growth of 17% CAGR over FY17-FY19E. We believe that near term pressure on EBITDA expected will ease led by pick in volume. We maintain our EBITDA margin estimates at 14% & 14.5% for FY18E & FY19E. We upgrade our EPS estimates by 8% & 8% to factor in pick-up in higher revenue growth and other income.

FCL’s H1FY18 PAT growth was impacted by lower volumes due to higher tax incidence due to GST, higher commodity prices and tax outgo. However, with revision in tax rates, volumes growth is expected to pick-up. We are positive on FCL in the long term given its strong brand recall & expanding product portfolio. We value FCL’s core business at P/E of 21x (17x earlier) on FY19E EPS and FCL’s investments in Finolex Industries at Rs81 to arrive at SOTP price target of Rs699. We upgrade our rating to Accumulate from Hold.

Analyst: Anil R, Geojit Financial Services Ltd. , SEBI Registration Number: INH200000345

General Disclosures and Disclaimers: Finolex Cables


Reliance Industries Ltd (RIL) is a diversified business conglomerate. Its core legacy business is oil and gas with a presence across upstream & downstream and petrochemicals (including textiles). It has expended into retail business and telecom business under the Jio brand name.

RIL’s Q2FY18 revenue (standalone) grew by 15% YoY largely on the back of higher crude oil prices. EBITDA increased at a strong pace of 23% YoY (in line with our estimate) supported by performance in petrochemical segment. EBITDA margin expanded by 168 bps YoY to 18.1%. However, net profit grew by 7.3% YoY on account of sharp increase (↑108% YoY) in interest expense due to higher debt. We expect revenue/net profit to grow at a CAGR of 14%/11% over FY17-19E led by stable gross refining margin (GRM) and strong growth momentum in petrochemical segment.

Refining throughput increased to 18.1mmt (implied 117% utilization) from 17.3mmt in Q1FY18 and 18.0mmt in Q2FY17. GRM improved marginally on sequential basis to USD12.0/bbl from USD11.9/bbl in Q1FY18 (USD10.1/bbl in Q2FY17). The premium over Singapore complex for the quarter stood at USD3.7/bbl (USD5.0/bbl in Q2FY17 and USD5.5/bbl in Q1FY18) due to lower light‐heavy and Brent Dubai differentials. We expect GRM to remain strong (in the range of USD11-12/bbl) over FY17-19E as oil demand stays robust with no major capacity addition in sight.

Petchem segment maintained strong momentum as it reported 26% YoY increase in revenue driven by healthy polyester & PVC spreads and strong performance from downstream core projects. EBIT increased by 42% YoY led by favourable margin and strong volume growth. EBIT margin improved by 205 bps YoY to 18.3%. Going forward, commissioning of grandiose USD20bn core project is likely to bolster RIL’s earnings.

Retail business continued to show robust traction as revenue and EBITDA increased by 81% YoY and 64% YoY, respectively. The company continued rapid store additions (45 stores added in Q2FY18) and now operates ~3,679 stores across 750 cities. We believe that current strong growth momentum in retail to sustain given the low penetration of organised retail in the overall retail pie of the country.

Jio reported stellar revenues of Rs61.5bn led by average revenue per user (ARPU) of Rs156, coming partly from Q1FY18 recharges. Notably, it has recognised bulk of the revenue from Summer Surprise Scheme (Q1FY18) in Q2FY18, propping up ARPU. EBITDA of Rs14.4bn benefited from lower-than-expected Opex coupled with capitalization of network and employee expenses. Jio added 15.3 mn net subscribers, taking the overall subscriber base to 138.6 mn.

We expect commissioning of downstream units of Refinery off-Gas Cracker (RoGC) to boost the petro chemicals performance further. However, a key monitorable for RIL going ahead would be subscriber ramp-up and ARPU in the telecom business with resolution of interconnection congestion issue. Hence, we continue to maintain BUY rating on the stock with a TP of Rs1,000 using sum of the parts (SOTP) valuation methodology wherein we value it standalone business at Rs616 (P/E of 10.0x for FY19E) and investments at Rs384.

Analyst: Kaushal Patel, Dion Global Solutions Ltd., SEBI Registration Number: INH100002771

General Disclosures and Disclaimers: Reliance Ind



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