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Expensive valuation a near term deterrent...

Thermax Ltd (TMX) is a leading energy and environment solutions provider. They offer integrated, innovative solutions in the areas of heating, cooling, power, water & waste management, air pollution control and chemicals.

* TMX reported in-line revenue growth of 19.6% YoY in Q4FY24, led by the industrial segment (23% YoY) and infra segments (17% YoY), green solutions (72% YoY) and chemical segments, which witnessed de-growth.

* EBITDA grew by 37% YoY and the margin improved by 123 bps YoY to 9.9% in Q4FY24. Better product mix and moderation of other expenses by 288bps YoY (as a % to revenue) aid the margin.

*The order book grew by 4% YoY in FY24, owing to a 7% YoY increase in new orders. A delay in order finalisation in sugar and steel due to the election impacted the inflows in FY24.

* The company expects traction in new order in bio-fuel, ethanol, and thermal power in FY25.

* However, an increase in debt of 55% YoY in FY24 will impact profitability and the balance sheet. Accordingly, we reduce FY25/ FY26 EPS estimates by 2% and 1%, respectively.

* Due to expensive valuation and weak order inflow growth, we revise our rating to SELL with a TP of Rs4,546 based on a P/E of 60x on FY26 EPS.

Delay in finalisation of orders impacted the order book...

In Q4FY24, total order inflow registered a muted growth of 2% YoY to Rs2,309cr, largely on account of the delay in the finalization of orders due to the election. TMX missed large orders from sugar, steel, and other sectors due to the deferment of decisions on account of the general election. The total order book grew by 4% YoY to Rs10,111cr, which is 1.1x FY24 revenue, providing visibility for the coming quarters. The order book of industrial products, green solutions, and chemicals grew by 23.2%, 60.4%, and 26.6%, respectively. The order book for industrial infra de-grew by 10% YoY in FY24. The management expects a good order pipeline for products like Thermotron, FlexiSource boilers, waste to energy, heat pumps, T-HVAC (thermal heating, ventilation, and Air Conditioning) systems.

In-line execution in Q4FY24...

In Q4FY24, TMX reported a revenue growth of 19.6% YoY to Rs. 2,764cr, aided by strong execution in the industrial product segment (23.1% YoY), Green solutions (71.5% YoY), and Industrial infra (16.9% YoY). The chemical segment witnessed a de-growth of –8.2% YoY. TMX is targeting Rs600cr of revenue from FGD orders in FY25 with a better margin compared to 4.7% in FY24. The management expects execution to pick up in FY25, aided by strong orders and TMX’s continued investments in solar and biomass-tohydrogen businesses. However, we largely maintain our FY25/FY26 revenue estimate.

Higher interest cost impacted the earnings...

In Q4FY24, EBITDA improved by 123bps YoY to 9.9% due to a better product mix and ease in input costs. Interest costs increased by 100% YoY in Q4FY24 due to a surge in borrowings, which restricted the PAT growth to 20% YoY to Rs188cr.

Valuations

The current higher valuation and an incremental increase in debt in FY24 will impact profitability in the coming quarters. Therefore, we reduce our FY25/FY26 EPS estimate by 2.5%/1.2% respectively, and change our rating to SELL. We value TMX at a P/E of 60x on FY26 EPS, with a TP of Rs 4,546.

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