The Matthews Pacific Tiger Fund (Trades, Portfolio) established a new holding in Thermax Ltd. (BOM:500411, Financial) in the final quarter of 2016.
The fund was established in 1994 and is managed by Sharat Shroff and Rahul Gupta. The fund seeks long-term capital appreciation through investing 80% of its total assets in Asian companies excluding Japan. It employs a fundamental, bottom-up investment approach to find companies with sustainable long-term growth prospects, strong business models, good management teams and reasonable valuations.
After previously selling out of Thermax in second-quarter 2016, the Pacific Tiger Fund established a new holding of 5,310,034 shares for an average price of 840.97 rupees ($12.51) per share. The trade had an impact of 0.9% on the portfolio.
Thermax is an Indian energy and environmental engineering company. Its products include boilers and vapor absorption machines. It also offers water and waste solutions and installs captive power projects.
The company has a market cap of 96.4 billion rupees and an enterprise value of 85.4 billion rupees. Its shares were trading around 809.25 rupees on Friday with a price-earnings (P/E) ratio of 48.8, a forward P/E ratio of 30.3, a price-book (P/B) ratio of 3.7 and a price-sales (P/S) ratio of 4.4.
The Peter Lynch chart below shows the stock is trading above its fair value.
GuruFocus ranked the company’s financial strength a solid 8 out of 10. The Altman Z-Score of 3.5 indicates the company has rarely, if ever, faced the risk of bankruptcy and is therefore financially sound. The company’s return on invested capital (ROIC) outperforms its weighted average cost of capital (WACC), implying it is creating value as it grows. In addition, the company’s cash-debt ratio of 8.2 and interest coverage ratio of 32.3 suggest the company is more than capable of covering its outstanding debt and interest expenses.
While the company is financially strong, its profitability and growth is less so. GuruFocus ranked Thermax’s profitability and growth a meager 3 out of 10. Its operating margin of 8.9% and net margin of 5.5% outperform other competitors in the industry. Similarly, the return on equity (ROE) and return on assets (ROA) outperform 97% of other companies in the global diversified industrials industry while the return on capital (ROC) outperforms 99% of competitors.
In contrast, the three-year revenue growth, EBITDA growth and EPS growth are underperforming competitors. In addition, GuruFocus gave Thermax a one-star business predictability rating, indicating its performance is not consistent and the company has experienced at least one year of loss in the past 10 years.
The fund is the only guru with a position in the company. The Pacific Tiger Fund's portfolio has a weight of 5.1% in the industrials sector.
Disclosure: I do not own the stock mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
