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Thermax (TMX) witnessed muted performance impacted by deferment of execution and impact of cost overruns in select projects. Thermax reported a 13%/16%/11% YoY growth in revenues/EBITDA/PAT. The EBITDA margin of 8.1% improved by 20bps YoY. TMX recorded ?100 mn as a one-off cost revision in a refinery order, which impacted margins negatively by 43bps. Order inflows grew 14% YoY at ?25.1 bn reflecting higher inflows from Bio-CNG taking the total order-book to ?107.2 bn. Within this order pipeline, the power sector has gained relevance. Here, Thermax aims to selectively bid for captive and utility level power plants. TMX expects a baseline quarterly run-rate of INR 23-24bn in ordering and expects ordering to ramp up in H2CY24 on the back of converting a couple of large orders from the pipeline in power/steel, etc. TMX stands to benefit from the investment in clean energy, sustainability, decarbonisation, normalisation of the international market and impetus on cleaner air and water. We have recalibrated our estimate considering the 9MFY24 performance. We maintain BUY with a revised price target of 3722.

Q3FY24 Result Summary

Revenue: ?23.2 bn (+13%/+1% YoY/QoQ,); industrial products/industrial infra/green solutions/chemical posted growth of 19/9/45/-2% YoY. EBITDA: ?1.9 bn (+16%/-9% YoY/ QoQ) and margin of 8.1% (+20/-82bps YoY/QoQ), an improvement on account of stable commodity prices and better execution. Segmental EBIT margin: industrial product: 9.9% (+51/-11bps YoY/QoQ); industrial infra: 3.6% (-181/-172bps YoY/QoQ); green solution: 10.6% (+436/+417bps YoY/QoQ); chemical: 20.5% (+641/+211bps YoY/QoQ. RPAT/APAT was ?2.4/1.4 bn (+9%/-15% YoY/QoQ). There was an exceptional gain of ?1.3 bn on sales of vacant land.

Order inflow stable; large order pipeline improving: In Q3FY24, TMX received orders worth ?25.1 bn (+14%/+27% YoY/QoQ), as a result, the closing order book stands at ?107.2 bn (+9%/+4% YoY/QoQ). TMX expects ?23-24 bn as the baseline quarterly run rate for ordering. It expects better ordering in H2CY24, aided by large orders in the power sector and pickup in steel and ethanol awards. TMX expects softer near term large orders due to delayed decision-making, but the backlog is getting bigger so that is positive. The company expects higher single-digit growth in FY24 order inflow over FY23. In Q3FY24, industrial products/ industrial infra/green solutions/chemical divisions bagged ?9.9/12.5/1/1.7 bn worth of orders with their respective order books at ?35/62/8/1 bn.

Outlook

TMX remains well-placed to be a leader for India in terms of clean water, clear air and clean energy solutions. We believe capex growth should sustain, backed by infra, PLI linked capex, industrial capex and housing recovery. Directionally, as revenues mirror the macro trends, margin outlook should improve. Further the order inflow and pipeline remains strong and the order book at ?107 bn provides healthy visibility ahead. It continues to invest in new products to reap benefits ahead. Going forward, TMX stands to benefit from the investment in clean energy, sustainability, decarbonisation, normalisation of the international market and impetus on cleaner air and water. We have recalibrated our estimate considering the 9MFY24 performance. We maintain BUY with a revised price target of ?3,722.

Risks:

• Impact of commodity price increase.

• Disruption in global supply chain.

• Change in government policy.

• Execution risk on large projects.

• International markets with low price competition from local players.

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