Accumulate Thermax Ltd for the Target Rs. 3,374 By Prabhudas Lilladher Ltd
Quick Pointers:
* Management expects Q4FY26 to clock double-digit growth while remaining bullish on the order intake.
* Company to remain selective on Industrial infra order booking, avoiding orders with higher content of construction or are government-linked.
Thermax (TMX) reported a mixed quarter with marginal revenue growth of 5.1% YoY while EBITDA margin expanded by 214bps YoY to 9.7%. An unfavorable product mix weighed on margins in the Industrial Products segment, while weaker performance in heating and enviro equipment is expected to keep margins broadly flat in FY26. The company continues to remain selective in Industrial Infrastructure order bookings, avoiding construction-intensive and government-linked projects in order to prioritize efficient execution of its existing order book. In the Chemicals segment, management is targeting EBITDA margins of 13-14%, supported by an expected improvement in performance in Q4FY26. Meanwhile, the company plans to add 250 MW of capacity in Green Solutions during FY26, with a longer-term objective of scaling to ~1.1 GW by FY28, while also evaluating options to monetize the business in the interim. The stock is currently trading at PE of 43.3x/37.8x on FY27/28E. We maintain our ‘Accumulate’ rating valuing the core business (ex. Green Solutions) at a PE of 37x Sep’27E (38x Sep’27E earlier) accounting for pressurized industrial products margins, arriving at a SoTP-based TP of Rs3,374 (Rs3,513 earlier).
Execution challenges will remain a key monitorable in the short term. However, in the long term, TMX is well placed to gain from increasing thrust on energy transition & de-carbonization led by its 1) sustainable green industrial solutions in bioenergy, heating & cooling, chemicals and water, 2) technical expertise, and 3) prudent working capital management.
Continued execution challenges in Industrial Infra weighed on performance: Consol. Revenue increased by 5.1% YoY to Rs26.3bn (Ple: Rs27.8bn) led by Industrial Products (+19.4% YoY to Rs12.9bn) and Chemicals (+4.5% YoY to Rs2.0bn), partly offset by decline in Industrial Infra (-8.8% YoY to Rs10.3bn) and Green Solutions (-13.5% YoY to Rs1.6bn). EBITDA increased by 34.8% YoY to Rs2.5bn (PLe: Rs2.3bn). EBITDA margin expanded by 214bps YoY to 9.7% (Ple: 8.3%) driven by Industrial Infra loss reduction, despite margin pressure in other two segments. PBT(ex. Extra-ordinaries) increased by 46.7% YoY to Rs2.3bn (PLe: Rs2.1bn) aided by higher other income (+50% YoY to Rs473mn). Adj. PAT increased by 30.7% YoY to Rs1.5bn (Ple: Rs1.6bn) despite of higher effective tax rate (+183bps YoY to 29.0%). Industrial Products margin came in at 9.3% (vs 11.3% in Q3FY25); Industrial Infra margin came in at 6.3% (vs 0.1% in Q3FY25); Green Solutions margin improved to 5.2% (vs -1% in Q3FY25); Chemicals margin declined sharply to 4.6% (vs 13.8% in Q3FY25).
Order book stands strong at Rs126.4bn (1.2x TTM revenue): Order inflow increased by 34.1% YoY to Rs30.8bn. Industrial Products order intake increased by 13.8% YoY to Rs15.8bn, Industrial Infra order inflow increased by 67.4% YoY to Rs11.2bn. Green Solutions order intake came in at Rs1.7bn (vs Rs470mn YoY), while Chemicals order intake grew by 8.4% YoY to Rs2.1bn. Order book stands at Rs126.4bn (1.2x TTM revenue), with Industrial Products/Industrial Infra/Green Solutions/Chemicals mix of 41%/50%/8%/2%, and domestic/export mix of 72%/28%
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SEBI Registration number is INH000000933
