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Private capex overhang; revise to Sell

Thermax (TMX IN) reported a robust quarter with operational profitability , supported by in - line execution and margin performance better than our estimates. It expects revenue momentum to gain traction in FY27 and a gradual completion of key legacy orders . Margin performance was healthy at 10.9%, up 120bp YoY. However, working capital rose due to project delays and slower collections & retention releases on large orders, although TMX expects gradual normalization in the next few quarters . Hence, w e revise our rating to Sell with a higher TP of INR 3,750 on 40 x March FY2 8E P/E, given the delay in private capex and uncertainty on packages in thermal power capex

In-line revenue leads to better profitability:

Revenue stood at INR 34.3bn, up 11% YoY, broadly in line with our estimates ,supported by robust execution in the i ndustrial products segment . EBITDA stood at INR 3.7bn, up 25% while margin stood at 10.9% , rising 120bp YoY. Management says emerging opportunities in data centers across both cooling solutions and boiler & energy solutions and expects a potential global boiler opportunity for steam turbine - based data center solutions .

Industrial infrastructure margin delivers a positive surprise:

Revenue rose 4% YoY to INR 14.7bn while segment margin stood at 6.5%, up 380 bp.Management highlight s legacy low - margin projects , FGD , bio -CNG, and some energy projects) are nearing completion, which should support better margin quality

EBITDA margin expands 120bp YoY to 10.9%:

EBITDA margin was at 10.9%, up 120bp YoY, ahead of our estimates of 9.6%. EBIT margin for industrial products declined 90 bp YoY at 3.6%, dragged by an adverse product mix; industrial infrastructure margin was at 6.5%, up 380 bp YoY, whereas chemicals margin was muted at 4.9%, down 110bp YoY , dragge d by higher input cost and an adverse product mix . Green solutions margi n stood at -14.2% vs -5.3% in Q4FY25 , dragged by project overrun cost .

Order inflow grows 112% YoY; order backlog stable at INR 136.0bn:

Order inflows saw growth of 112% YoY to INR 44.9 bn , led by a boiler package supply order for a n ultra -supercritical thermal power plan t. Industrial products order in flow stood at INR 1 5.1bn, up 50% YoY, whereas industrial infrastructure inflow was at INR 24.3 bn, up 169% YoY. Green solutions orders was at INR 3.2bn, up 1410% YoY, whereas chemicals at INR 2.3bn, up 24% YoY . Orderbook grew 8% QoQ to INR 1 36bn

Revise to Sell with a higher TP of INR 3,750:

We increase our EPS by 1% for FY2 7E, and 9% for FY2 8E and raise our TP to INR 3,750 from INR 2,870 on 40x (from 35x) March FY28E P/E on account of robust quarter ,supported by healthy order inflow and newer growth opportunities like data centre cooling . We introduce our FY29 estimates . However, w e revise to Sell from Reduce, due to the delay in private capex, uncertainty on packages in thermal power capex, and prolonged transitioning to cleaner fuels. We expect an earnings CAGR of 30% during FY2 6-29E with an average ROE and ROCE of 1 6% & 13%, respectively, during FY26 -29E .

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