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Range of offerings on energy transition

We attended Thermax’s analyst meet where company demonstrated its innovative technologies and bespoke solutions for the green solutions segment to cater to energy transition needs of customers. Through its two subsidiaries TOESL and FEPL, company offers a range of products and services across bio energy and renewable. It also has lined up plans to enter into coal gasification and electrical energy solutions including electric pumps. We expect company to continue to invest in these initiatives over next few years. These new products, though higher in pricing than traditional products by 30- 40% but will be RoI accretive based on energy cost savings.

Order inflows have started improving with one large order of INR5b announced for bio-CNG plants. Over FY23-26, we expect Thermax to post a 14% CAGR in revenue on the back of a strong order book (INR103b; OB/Rev: 1.1x). We estimate a 21% CAGR in earnings, aided by revenue growth and margin improvement. We continue to value Thermax at 38X December, 25 estimated earnings and add value from green solutions. We maintain Neutral rating on the stock with a TP of INR2,740 and would look for better entry points in the stock.

Key takeaways from the meeting

Innovating across a broad range of products

Company has introduced several new products over last few years to capture energy transition needs of customers. These include offerings from TOESL, FEPL, coal gasification and electric pumps along with range of boilers, bio CNG offerings and range of chemicals. It has created a differentiation across products with company either being the only one in these products or has limited competition. Thermax is the only player in flexi-fuel boilers, thermal HVAC, TOESL offering and has limited competition in bio-CNG, cooling solutions, coal gasification and chemicals.

Growth strategy has changed over years

Thermax’s experience in international geographies in past wasn’t as per company’s expectations and it has over years changed its strategy to grow in domestic market by expanding across range of products, growing TOESL and FEPL, entering into hydrogen, growing chemicals and water related offerings.

Consciously shied away from competitive bids

Company’s order book has not grown in line with other sector players who have grown faster in last two years. This is due to conscious bidding strategy of Thermax. Company is clearly not willing to participate in large thermal power projects and will take a call how this segment grows in future.

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SEBI Registration number is INH000000412