Thermax: CMP: Rs. 673 Target Price: Rs. 657

Thermax

Reco: HOLD

CMP: Rs. 673

Target Price: Rs. 657

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Thermax has entered into a 51:49 JV with Babcock & Wilcox (B&W) to manufacture super-critical boilers. We believe that Thermax will derive benefits from the JV over the long term, but be earnings neutral during FY10-12E period. The JV will increase Thermax' exposure to our preferred theme of 'Structural Capex' in the Power sector and reduce its dependence on the cyclical process industries. Further, we expect the capex in process industries to gain momentum in FY11E (as mentioned in our report 'Roll the Dice…') and Thermax will emerge as beneficiary. However, we believe that the above event is already priced in as the management had already stated its intent of entering the super-critical power components space. We retain our HOLD recommendation with a price target of Rs657.

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