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Decent quarter signals gradual recovery

Quick Pointers:

* The quarterly results were impacted from technological intervention costs of Rs660mn in Bio-CNG.

* Order book mix stands at Industrial Products/Industrial Infra/Green Solutions/Chemicals of 39/51/8/2%, and a domestic/export mix of 77/23%.

We revise our FY26/FY27 EPS estimates by -2.2%/-3.0% factoring in probable execution delays in Industrial Infra. Thermax (TMX) delivered a decent performance in Q4, reporting 11.6% YoY revenue growth, while EBITDA margin saw a marginal decline of 17 bps YoY to 9.7%. Management remains optimistic about FY26 revenue growth with better margins, supported by robust momentum in the Industrial Products segment. The Chemicals business is poised to contribute meaningfully in the medium term through continued product innovation and market expansion. Execution challenges in the Industrial Infrastructure segment, particularly in Bio-CNG and FGD, have largely been addressed, while the order prospects remain robust in refinery & petrochemicals, steel, cement, and waste-to-energy projects. In the Green Solutions segment, losses from FEPL are expected to reduce significantly, while TOESL is anticipated to maintain its steady growth trajectory.

We believe TMX is well placed to gain from increasing thrust on energy transition & de-carbonization led by its 1) sustainable green industrial solutions in bio-energy, heating & cooling, chemicals, and water, 2) technical expertise, and 3) prudent working capital management. The stock is currently trading at a PE of 49.8x/44.3x on FY26/27E. We roll forward to Mar’27E and maintain ‘Accumulate’ rating valuing the core business (ex. Green Solutions) at a PE of 40x Mar’27E (40x Sep’26E earlier) with a revised SoTP derived TP of Rs3,629 (Rs3,456 earlier).

Lower gross margin and higher employee costs drag down profitability: Consol. revenue rose 11.6% YoY to Rs30.8bn (Ple: Rs30.8bn) driven by healthy growth in Chemicals and Industrial Products. Industrial Products revenue grew 18.5% YoY to Rs14.3bn; Industrial Infra grew 4.3% YoY to Rs14.2bn; Green Solutions rose 4.1% YoY to Rs1.5bn; and Chemicals jumped 36.3% YoY to Rs2.1bn. Gross margin increased by 38bps YoY to 43.4% (PLe: 44.2%). EBITDA grew 9.7% YoY to Rs3.0bn (PLe: Rs3.1bn). EBITDA margin largely remained flat at 8.2% (PLe: 10.2%) led by gross margin expansion partially offset by higher other expenses (up 123bps YoY % of sales). Industrial Products margin came in at 14.4% (vs 11.7% in Q4FY24); Industrial Infra margin fell to 2.8% (vs 6.1% in Q4FY24); Green Solutions margin fell to -5.3% (vs -2.9% in Q4FY24); Chemicals margin declined to 16.6% (vs 19.2% in Q4FY24). PAT increased by 9.7% YoY to Rs2.1bn (PLe: Rs2.2bn), driven by better operating performance and higher other income (+39.1% YoY to Rs769mn).

Order book stands strong at Rs106.9bn (1.0x TTM revenue): Order inflow declined 8.2% YoY to Rs21.2bn, due to no large order booking during the quarter. Industrial product order intake declined 4.8% YoY to Rs10.1 bn while Industrial Infra order inflow declined by 15.8% YoY to Rs9.0bn. Chemical order intake grew by 6.4% YoY to Rs1.8bn and Green solutions order intake came in at Rs210mn (vs Rs30mn in Q4FY24). Order book stands at Rs106.9bn (1.0x TTM revenue), with an Industrial Products/Industrial Infra/Green Solutions/Chemicals mix of 39/51/8/2%, and a domestic/export mix of 77/23%.

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