| Thermax Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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+’.
Revenue grew by around 30% due to healthy order booking and strong demand from end-user industries. Large orders of ~Rs 9,400 crore for fiscal 2022 provide medium-term revenue visibility.
Financial risk profile remains robust due to net-debt free status, healthy debt protection metrics and strong liquidity. Gearing was negligible at 0.1 time as on time as on March 31, 2022, and is expected to remain at a similar level over the medium term. Debt protection metrics are expected to be robust, with interest coverage ratio likely to remain above 15 times over the medium term. Cash and liquid investments were sufficient at around Rs 2,400 crore as on March 31, 2022.
The ratings also take into account the diversified product portfolio and geographic presence of Thermax, which lends stability to its revenue streams and prudent working capital policy. These strengths are partially offset by exposure to cyclicality in end-user industries and modest operating profitability owing to intense competition. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Thermax and its subsidiaries and joint ventures as these are in the same business.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The company has net debt-free balance sheet and large estimated networth of over Rs 3,400 crore as on March 31, 2022. Capital structure has remained comfortable in the past, with total outside liabilities to tangible networth (TOLTNW) ratio of less than 1.25 times over the last four fiscals. Debt protection metrics are robust on account of limited debt (~ Rs 400 crore as on March 31, 2022) and healthy cash accrual. Modest capital expenditure (capex) over the medium term will be comfortably met through internal accrual. Hence, financial risk profile will remain strong over the medium term. Liquidity is adequate, supported by cash surplus of over Rs 2,000 crore and largely unutilised bank limit.
Product portfolio comprises 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 30-35% of the revenue coming from the overseas market.
Net working capital cycle has been 50-70 days for the three fiscals ended March 31, 2022, due to prudent collection policy and inventory management. Despite having exposure to large turnkey projects, receivables have remained less than 120 days in the past due to careful selection of projects and tight control on collections. This has also led to low dependence on working capital debt.
Weaknesses:
A weak demand environment and investment climate has led to a slump in orders in many of the end-user segments as companies have increasingly shelved expansion plans. This led to stagnation in order book in the last two fiscals. While the existing order book of over Rs 8,800 crore (as on March 31, 2022) provides robust revenue visibility for the next 1-2 fiscals, timely completion of the same will remain a key monitorable.
The company faces intense competition in business segments such as low-capacity boilers and packaged-water treatment plants. Hence, operating margin has largely remained 7-9% in the past. Margin is also vulnerable to fluctuations in input prices; this is reflected in decline in margin to ~6.9% in fiscal 2022 owing to increased commodity 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 forex (foreign exchange) exposure. Nevertheless, Thermax will continue to be impacted by increase in input prices, which account for over 70% of production costs. |
Liquidity: Superior Net cash accrual is expected to be Rs 300-350 crore per annum in fiscals 2023 and 2024 while cash and equivalents stands at over Rs 2,000 crore currently and should be more than sufficient to meet capex requirement. Besides having nil long-term debt, Thermax has access to fund-based limit of Rs 290 crore that was utilised by 47% on average over the 12 months through March 2022.
ESG profile The environment, social, and governance (ESG) profile of Thermax supports its already strong credit risk profile. The thermal power sector has significant environmental impact in the form of high emissions and water consumption. The sector has significant social impact because of its direct bearing on the health and wellbeing of its workers and customers.
The key ESG highlights of Thermax
ESG is gaining importance among investors and lenders. The commitment of Thermax to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Outlook: Stable The credit risk profile of the company will remain stable over the medium term, backed by 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 began operations by manufacturing packaged boilers but has subsequently diversified 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 focused 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)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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