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We downgrade our rating from ‘Accumulate’ to ‘HOLD’ given the persistent execution challenges, valuing the core business (excl. Green Solutions) at PE of 40x Mar’27E (same as earlier) with SoTP-derived TP of Rs3,633 (Rs3,629 earlier). Thermax (TMX) saw muted revenue growth of 4.1% YoY, impacted by lower execution, though EBITDA margin improved by 162bps YoY to 8.1%. The management maintains a cautiously optimistic outlook for FY26, expecting moderate revenue growth and margin improvement, contingent on timely execution and a steady order pipeline across domestic and export markets. While Water & Enviro continues to gain traction and Cooling benefits from ~Rs1.0bn pipeline, the Heating segment performance remains below expectations. Industrial Infra is anticipated to post double-digit growth driven by the execution of key projects. Chemicals is expected to be the fastest growing segment. TMX has a total of ~Rs300cr of annual exports exposure to the USA, which are currently clouded by ongoing tariff-related uncertainties. TMX’s Green Solutions portfolio is set to exceed 300MW, with an additional 300MW under development, ensuring steady growth.

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. The stock is currently trading at PE of 57.5x/50.7x on FY26/27E. Downgrade to ‘HOLD’.

Pushing of projects to next quarter impacts revenue growth: Consol adj revenue (excl. Rs558mn of incentive under PSI) declined 4.1% YoY to Rs20.9bn (PLe: Rs24.2bn). Industrial Products revenue was flat YoY, at Rs9.5bn; Industrial Infra (excl. PSI) declined 9.8% YoY to Rs8.3bn; Green Solutions was flat YoY, at Rs1.7bn; and Chemicals increased marginally by 1.4% YoY to Rs1.7bn. EBITDA grew 19.9% YoY to Rs1.7bn (PLe: Rs1.7bn). EBITDA margin improved by 162bps YoY to 8.1% (PLe: 7.1%) led by gross margin expansion partially offset by higher operating expenses. Industrial Products’ margin came in at 8.1% (vs 9.0% in Q1FY25); Industrial Infra margin came in at 8.5% (vs very low base of -2.0%); Green Solutions margin improved to 5.1% (vs 3.3%); and Chemicals margin declined sharply to 9.3% (vs 17.8%). Adj PAT declined by 4.3% YoY to Rs1.1bn (PLe: Rs1.4bn) due to lower other income (declined 22.0% YoY to Rs656mn).

Order book strong at Rs113.8bn (1.1x TTM revenue): Order inflow increased by 7.0% YoY to Rs27.5bn. Industrial Products order intake increased by 2.4% YoY to Rs13.0bn. Industrial Infra order inflow increased by 16.5% YoY to Rs11.6bn. Green Solutions order intake increased by 28.0% YoY to Rs1.3bn, while Chemicals declined by 19.7% YoY to Rs1.7bn. Order book stands at Rs113.8bn (1.1x TTM revenue), with Industrial Products/Industrial Infra/Green Solutions/Chemicals mix of 41%/49%/9%/1%, and domestic/export mix of 76%/24%.

Conference Call Highlights

• Management remains reasonably bullish for FY26 and Q2FY26 with growth to be driven by Industrial Products. The management further expects Industrial Infra and Green Solutions to post reasonably good stable growth. Despite the expected order intake run rate per quarter of ~Rs22.5bn for Chemicals business, the management remains cautiously optimistic given the uncertainty revolving around tariff impact on the business.
• Order enquiry pipeline: There is a robust enquiry pipeline across key sectors such as O&G, power (including thermal), steel, cement, waste-to-energy, and sugar distilleries. International demand remains strong, with growing traction in regions like the Middle East, Africa and Latin America, further strengthening the company’s growth outlook.
• Industrial Products segment saw muted profitability due to lower revenue. Water & Enviro continued to grow with strong demand in desalination and ZLD. Cooling remained robust, while it has ~USD15mn exports exposure to the USA. Cooling has a robust pipeline of Rs1.0bn from emerging sectors like data centers. Heating was weak due to ethanol slowdown, but rising enquiries point to a better Q2. The company aims to cross Rs10.0bn as export orders in the segment’s order book, backed by a healthy global pipeline.
• Industrial Infra segment is expected to have a stronger Q2 as execution of key projects begins. The company has stepped back from low-margin government projects like FGDs, focusing instead on higher value opportunities. It expects double-digit growth in FY26, driven by rising opportunities in non-supercritical and captive thermal segments, where it sees a stronger role. International competitiveness is improving, and the company is building EPC capabilities in areas like ethanol and carbon capture, aiming for a larger revenue share by FY29-30. While PSI credits will continue to be received, it will taper over the next 2wo years. The existing FGD backlog (~Rs700cr) will be mostly cleared by FY26.
• Chemicals is expected to be the fastest growing segment for TMX, driven by R&D investments and capacity expansions by the company. Capacity and capability additions in the business led to lower margin during the quarter. Margins are expected to improve to 12-13% in Q2FY26, while stable business margins are expected to be 15-16%. The management anticipated ~USD15mn chemical exports to the US for FY26 but now foresees short-term uncertainty due to the impact of reciprocal tariffs by the US.
• Green Solutions: The management anticipates to achieve operational capacity of 300MW of its green assets by FY26. Additional 300MW of capacity is under construction. The newer project in Gujarat is seeing good traction as the management focuses on better execution. However, legacy projects, which were stuck in Tamil Nadu, have been further delayed to Aug’25 from Jun’25. The management expects to infuse Rs10.0bn of debt and Rs4.0bn of equity into its subsidiary for the new plants in Gujarat and Tamil Nadu.
• Exports from India: Exports from India have relatively higher margins. The company sees good traction from exports markets such as the Middle East, SEA, Africa and Latin America. TMX competes reasonably well in international markets, primarily against Chinese products. TMX’s product portfolio, such as boilers and chillers, can be customized according to applications, which gives it an edge above its peers. Geography wise, SEA is the most competitive due to higher Chinese penetration, while Africa and Latin America have relatively lower Chinese competition. TMX is working on getting approvals for big projects in petrochemicals and O&G in geographies like the Middle East, where it will be primarily competing with Europe.

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