Tag - ESG

Update on the Indian Equity Market:

The weakness witnessed in global equity markets on Friday got reflected in the Indian Equity market at start of the week on Monday. Concerns mounted about the ability of authorities to keep the coronavirus from spreading further beyond China. NIFTY50 closed 2.0% lower at 11,839 level. All NIFTY50 stocks closed in the red. The worst performers were JSWSTEEL (-7.4%), VEDL (-6.5%) and TATASTEEL (-6.3%). METAL (-5.4%), AUTO (-3.5%) and PHARMA (-3.1%) were among the worst hit. No sectoral index closed positively.

Selective improvement visible, total market turnaround still far away: Mr Unnikrishnan, Themax

Excerpts from an interview with Mr Unnikrishnan, MD – Thermax published in Mint dated 24th February 2020.

• Orders in January were better than the past couple of months. Selective improvement is visible towards the end of 1HFY20 and at the start of 2HFY20E. A total turnaround is far away.
• There is a lot of traction and capacity build-up in the oil and gas industry. Mr. Unnikrishnan expects a lot more orders coming from the sector in 2HFY21E.
• The cement sector is seeing positive movement. Most cement companies in India are not overleveraged and there are some greenfield and brownfield expansions expected.
• Mr. Unnikrishnan thinks Oil & gas, and cement are the only 2 sectors where there could be investments in FY21E.
• The consumer facing industry is seeing improvement in the utilization levels from December. The negativity in consumer-facing industry, FMCG and durables for the last 6-7 months should start reversing in 1HFY21E. This means that some companies will start ordering from 2HFY20E, which will benefit Thermax.
• Thermax was facing some issues in terms of slower payments coming in from both the private sector and government orders. Mr Unnikrishnan says private sector payments are improving due to improved performance. There is no improvement in the pace of public sector payments despite the issue being taken up to the highest levels. Including the contracting fraternity, Rs 1,750 bn is stuck with PSUs and government departments, some of which are on account of project completions getting delayed.
• Mr. Unnikrishnan sees a positive movement in India related to the environment, both in air pollution control and in wastewater and effluent treatment. Many ‘A’ category industries are moving into ESG (Environmental, social, and governance) mode as they understand that without ESG, investments will not come to them. So a higher level of voluntary compliance is seen from the industry.
• CLSA put out a note saying that this will be a year to focus on emission reduction for companies like NTPC. As per Mr. Unnikrishnan, NTPC has already completed this in half of their plants and they have/ will already initiate action on the rest. Pre dominant part of Indian power generation is with state electricity boards and none of them have placed orders for the Flue-gas-desulfurisation (FGD). That means about 100,000 mega-watts worth of coal-fired power plants are yet to initiate action. When it happens, it will be a huge market opportunity. However, most of these state electricity boards, except 2 are financially stranded.
• Thermax is in negotiations with multiple private Indian cement companies for pollution control and carbon footprint reduction. Thermax has done multiple plants and is in negotiations with multiple Indian cement companies for generating electricity from their waste heat. There could be some orders in this area in 4QFY20E itself and also a few in 1HFY21E.

Consensus Estimate: (Source: market screener website)

The closing price of Thermax Ltd. was ₹ 970/- as of 24-February-2020. It traded at 35x/ 26x/ 22x the consensus earnings estimate of ₹ 28/ 37/ 45 for FY20E/ FY21E/ FY22E respectively.
The consensus target price for Thermax Ltd. is Rs 1,063 implying a P/E of 24x over the FY22E EPS of Rs 45/-