IGI Logo

Performance sharply below estimates

Thermax’s 1QFY27 results came in significantly below our estimates, impacted by cost overruns of nearly INR910m for an existing project in the industrial infra segment and lower revenue booking in the industrial products segment. The cost overrun was notably over and above what the company had seen for legacy projects. With the legacy order book of INR3-4b now nearing completion by 2HFY27, we expect the margin profile to start improving. The order pipeline is strong across heating, cooling, waste-to-energy products, sub-critical and super-critical thermal power projects, and data center-related projects from the US. Factoring in the weak 1QFY27 performance, we cut our estimates by 20%/3% for FY27/28 and arrive at a revised SoTP-based TP of INR4,000, based on 40x P/E for core business. We retain Sell rating on the stock on high valuations and negative surprises in the legacy order book.

Sharp miss on estimates due to cost overruns

Revenue increased by 7% YoY to INR23.0b vs. our estimate of INR24.4b. Growth was broad-based across segments, barring industrial infra. Gross margin contracted ~350bp YoY to 47% vs. our estimate of 45%. Absolute EBITDA decreased by 70% YoY to INR686m vs. our estimate of INR2.1b, while EBITDA margin stood at 3.0% (vs. 10.4% last year). The sharp contraction in margins was mainly due to an increase in the estimated cost to complete its legacy project in the industrial infra segment, impacting profitability by ~INR910m. However, even after adjusting these costs, industrial infra margins stood at 2.5% vs. our estimate of 4.0% and 7.9% last year. These factors, along with lower dispatches to an extent of INR3b in the industrial products segment during 1QFY27, led to 86% YoY decline in PAT to INR218m vs. our est. of INR1.1b. Order inflow for the quarter stood at INR28.1b, up ~2% YoY, taking the total order book as of Jun’26- end to INR140b (+23% YoY).

Multiple headwinds weighed on 1Q profitability

1QFY27 profitability was impacted by an additional ~INR910m provision on a loss-making ~INR12b legacy government project, which has its last four quarters of execution remaining (74% invoiced, 26% pending), after significant unbudgeted engineering changes were received from the engineering partner in Jun’26. Industrial Products execution was impacted by ~INR3b of delayed finished-goods shipments, largely to international customers, including the Middle East, and ~INR100m of commodity inflation, part of which was already anticipated. In Green Solutions, the company incurred ~INR70-80m of quarterly costs, while FEPL reported an unexpected ~INR200m loss as two completed Tamil Nadu projects could not commence power generation due to approval delays following the government transition and carrying costs related to the platform ahead of bringing in an external investor.

Valuation and view

The stock is currently trading at 76.2x/48.7x/39.6x on FY27E/FY28E/FY29E EPS. We reiterate our Sell rating with a revised TP of INR4,000 (INR4,300 earlier), based on 40x Sep’28E earnings for the core business.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412