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Industrial Infra rebound on cards

We visited Thermax’s Water & Waste Solutions plant in Pune and engaged with top management to discuss the financial and operational performance along with future growth and profitability outlook. The management remains optimistic with a minimum of ~10-11% revenue growth CAGR over the next five years with better margins supported by better execution in H2FY26. Company’s exposure to the USA tariffs remain below ~1% as the Chemical business is exempt. Emerging segments, including Green Hydrogen, Green Ammonia, and Sustainable Aviation Fuel (SAF), are expected to provide new avenues of growth for Industrial Infra and Industrial Products. Despite the slower than anticipated expansion of Chemicals business, it is expected to sustainably grow driven by company’s foray into specialty chemicals. The management aims to achieve 1 GW operational capacity in Green Solutions, post which may dilute its stake. Management remains risk averse with selective order booking (orders below Rs5.0bn) and focus on core capability building for long-term sustainable 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 50.6x/44.7x on FY26/27E. We maintain our ‘Hold’ rating valuing the core business at a PE of 40x Mar’27E (same as earlier) arriving at a SoTP-derived TP of Rs3,633 (same as earlier).

Key takeaways from the plant visit 

The plant specializes in manufacturing water treatment systems which form ~20% of the Industrial Products business with capacities ranging from 1 kiloliter per day (KLD) to 1 million liters per day (MLD). 

The large plants are also categorized as projects instead of products which go into Industrial Infra segment. 

The plant currently manufactures 3–4 vessels per day while operating on a single shift. Depending on demand, production can be scaled up to ~8 vessels per day by adding a second shift. As a result, the plant is presently operating at less than 50% capacity utilization

Average ticket size of Thermax’s water treatment plant is ~Rs40-50mn while the completely integrated system of capacity 1 MLD can range up to ~Rs100mn with an execution period of 5 months

Thermax’s total investment in this manufacturing facility stood at ~Rs170mn for civil work and ~Rs100 for plant machinery.

Thermax also offers small plug-and-play water treatment plants whose average ticket size is ~Rs5.5mn. Some of the small-scale plants includes E series RO (200-3000 liters per hour (LPH)), CuBe STP (10-50 KLD), atoM STP (10-50 KLD). 

Such plants primarily serve process industries such as food processing, pharma, pulp & paper, brewery, cement, steel, textiles etc.

Vessel Fabrication:

Process, Precision, and Production Scale The systems are built around two main components: vessels and reverse osmosis (RO) units. Vessels are cylindrical structures filled with filtration media such as sand, anthracite, or activated carbon (depending on effluent type) to remove larger contaminants before RO treatment

Vessel Fabrication Process 

Sheet Preparation: Iron sheets are plasma-cut and rolled into vessel shells and dish ends. 

Automated Welding: Shells and ends are joined using robotic welding (supplied by ESAB India) for precision.

Component Integration: Nozzles and brackets are fitted manually. 

Surface Treatment: Micro-blasting with fine abrasives ensures cleaning, deburring, and surface refinement.

Quality Assurance: Vessels undergo hydraulic pressure testing at 6 bar to confirm integrity.

Assembly and Integration of RO Units

The fabricated vessels are integrated with in-house manufactured pressure tubes and externally sourced membranes, mounted on vendor-supplied skids. 

Pressure Tubes: Withstand high pressures, protect membranes, and direct water flow

RO Membranes: Semi-permeable barriers that reject salts, metals, organics, and pathogens, removing 95–99% of dissolved solids

This integration ensures deep purification with a recovery rate of ~95%, which Thermax is working to improve to 96–97%. The company’s key value addition lies in design and engineering of filtration media and membrane selection.

Packing and Warehouse Management

Finished systems are packed and stored in Thermax’s warehouse, which combines automation with manual management.

Automated Section: Vertically stacked storage units (70 crates each, ~400 kg capacity) enhance efficiency and accuracy; three such systems were installed at ~Rs10mn.

Manual Section:

Established with ~Rs9mn investment, it stores raw materials and bought-out components for easy segregation and handling.

Key takeaways from the management interaction 

Management expectations:

The management continue to remain optimistic and expect at least ~10-11% growth CAGR for next 5 years with better margins. The monsoons in the country led to delays in the execution during Q1. However, H2FY26 is expected to perform better.

USA tariffs:

Thermax has exposure to the USA via its cooling business and chemicals business. The Chemicals business has been exempted from the reciprocal tariffs due to their applications in water treatment. Meanwhile, some impact is expected on its cooling business. The USA forms part of ~2% of Thermax’s consolidated revenue hence the impacted business is less than ~1% of the revenue.

Bio-CNG order book of ~Rs2.5bn:

Thermax’s Bio-CNG projects are yet to be delivered and ~Rs2.5bn remains on its book. This backlog is expected to be cleared in FY26. The feed stock for the Bio-CNG plants still has 30-40% moisture which significantly affects the yield of the plants. Hence, management has started committing lower yields and has not booked any big order in this space for last year.

FGD to be delivered by FY27:

Thermax still has nearly ~Rs4.5bn of legacy order book of FGD project. It plans to clear ~Rs3.5bn in FY26 with remaining ~Rs1.0bn to be delivered in FY27.

New opportunities:

Green hydrogen and ammonia are gaining strong traction in India, supported by government tenders and globally competitive pricing. With its HydrogenPro tie-up and localized value creation, Thermax is wellpositioned to benefit, alongside emerging opportunities in SAF and carbon capture. 

Chemicals slower than expected:

The expansion of the chemical business has been slower than anticipated. However, with company’s foray into specialty chemicals, such as flooring and construction chemicals, management aims to grow sustainably in the long run. The company has also invested in a new Chemical plant along with quarterly investment of ~Rs30-40mn for capability development.

Green Solutions:

Thermax’s current green asset capacity is ~300MW which they aim to grow to 1GW in few years at a total investment of ~Rs10bn. Post achievement of 1GW capacity, the company will explore the options to onboard a partner and dilute its stake in the Green Solutions business.

Exports:

Company is investing and expanding its presence in different geographies while also improving its presence in focus geographies such as South-East Asia, Middle East, Africa, Sri-Lanka and Bangladesh. Among the focus geographies, Middle East remains the fastest growing. The geographical expansion to take place for its industrial infra, products and chemicals business while the green solutions to solely focus on domestic market.

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