| Thermax Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Thermax Limited (Thermax) at ‘CRISIL AA+/Stable/CRISIL A1+’.
Thermax’s operations have picked up post lockdown related disruptions in the initial two quarters of fiscal 2021. The company reported revenues of Rs. 3217 crores in the first nine months of this fiscal, a decline of 27% as compared to the same period last year. The operating profitability was 6.7% in the first nine months this fiscal, backed by cost cutting measures amidst the pandemic. Overall, revenues are estimated to decline by ~15% in fiscal 2021 as compared over last fiscal, with operating profitability at about 7%. The company’s operating performance is expected to rebound from fiscal 2022.
The ratings reflect Thermax’s strong financial risk profile, marked by robust capital structure and debt protection metrics, and strong liquidity. The rating also reflects Thermax’s diversified product portfolio and geographic presence, which lends stability to its revenue streams and prudent working capital policies. These rating strengths are partially offset by exposure to cyclical vagaries of the end user industries and Thermax’s moderate operating profitability owing to its exposure to intense competition. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Thermax and its subsidiaries. This is because most of its subsidiaries and JVs are in similar lines of business as Thermax.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Robust financial risk profile Thermax has a robust financial risk profile marked by net debt free balance sheet, large networth of over Rs. 3,000 Cr estimated as of March 31, 2021. The company has maintained a comfortable capital structure in the past with TOL/TNW remained at less than 1.25 times over the last 4 fiscals. The company’s debt protection metrics are also robust, on account of low debt (less than Rs. 300 Cr estimated on March 31, 2021) and healthy cash accruals. Going forward, the capex plans are also modest at less than Rs 70-100 Cr per annum which will be comfortable met through internal accruals. Hence, CRISIL believes that Thermax will maintain its strong financial risk profile, supported by healthy operating cash flows, and funding of its capex largely from internal surpluses. Furthermore, its liquidity remains strong, supported by cash surplus of over Rs. 1,500 Cr and largely unutilised bank lines.
Diverse product portfolio and geographic presence leading to stable revenue stream Thermax has a diverse product portfolio comprising boilers, waste-heat recovery systems, cogeneration plants, and absorption chillers in the energy business, and water-treatment plants, air-pollution-control equipment, and water treatment chemicals in the environment business. The company is a leading player in several of its product segments, such as vapour absorption chillers, low- and medium-capacity boilers, and electrostatic precipitators. Besides, Thermax has also been steadily increasing its global footprint with about 30-35% of the revenues coming from overseas markets. CRISIL believes that Thermax’s diverse product profile and geographic presence strengthens its overall market position in the capital goods segments, resulting in a healthy business risk profile.
Prudent working capital management Thermax's working capital requirements are efficiently managed reflected in its low net working capital cycle of 50-70 days for past three years ended March 31, 2020, owing to prudent collection policies and inventory management. Despite having exposure to large turnkey projects, debtors have remained at less than 120 days in the past due to careful selection of projects and tight control on collections. This leads to low dependence on working capital debt as well.
Weaknesses Exposure to cyclical vagaries of end user industries A weak demand environment and investment climate has led to a slump in orders in many of the end user industries as companies have increasingly shelved expansion plans. This has resulted in stagnancy in Thermax’s order book in the last 2 years. While the existing order book of over Rs 5,200 Cr (as of December 31, 2020) provides good visibility on revenues over the next 1-2 years, new order flow has picked-up with recovery in end-user industries in the third quarter of this fiscal.
Modest operating profitability due to intense competition in the industry Thermax is exposed to intense competition, and hence, faces pricing pressures, in business segments such as low-capacity boilers and packaged-water treatment plants. Operating margins have hence largely remained at 8-10% levels in the past, except for the moderation to 7% seen in fiscal 2020 amidst the nationwide lockdown and related disruption. .
Besides, Thermax’s operating margins are moderately vulnerable to fluctuations in input prices. The company has taken several measures to reduce input costs, such as centralised purchasing of raw materials and components for all divisions as well as global sourcing, back to back placement of orders for components and prudent hedging of its forex exposure. Nevertheless, CRISIL believes that Thermax will continue to be impacted by increases in input prices, as input costs constitute over 70 per cent of its costs. |
Liquidity- Superior Thermax enjoys superior liquidity driven by expected cash accruals of Rs 200-250 crore per annum in fiscals 2021 and 2022 and cash and cash equivalents of over Rs.1600 crore currently which should be more than sufficient to meet the capex requirements of around Rs.70-100 crore per annum. Besides, Thermax also has nil long term debt obligations and has access to fund based limits of Rs.290 crore, utilized to the tune of 35% on an average over the 12 months ended February 2021. |
Outlook Stable CRISIL Ratings believes Thermax’s credit risk profile will remain stable over the medium term benefitting from the healthy balance sheet and large cash surplus. |
Rating Sensitivity factors Upward factors
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About the Company Pune-based Thermax was incorporated in 1966 as Wanson India Pvt Ltd, and went public in February 1995. It had begun with the manufacture packaged boilers, but has subsequently diversified its product portfolio, which now includes packaged and custom-made large boilers, cogeneration equipment, air-pollution-control equipment, water- and waste-treatment plants and chemicals, and absorption chillers. Thermax has traditionally focussed on turnkey projects for large boiler systems, water- and effluent-treatment plants, air-pollution-control systems, and co-generation plants. It also pioneered the vapour-absorption cooling plants segment in India. |
Key Financial Indicators: (Consolidated)
For the first 9 months of fiscal 2021, on a consolidated basis, Thermax had revenues of Rs 3217 crore and PAT of Rs 99 crore as compared to revenues of Rs 4408 crore and PAT of Rs 173 crore in the corresponding period of the previous fiscal. |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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