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Performance continues to disappoint

Thermax’s 2QFY27 results came in below our estimates, hurt by revenue deferrals, higher commodity prices and cost overruns. Order inflow for 1HFY27 was down 4% YoY and the company expects it to pick up in 2HFY27. The West Asia crisis has resulted in higher logistics costs and shipment delays, preventing certain high-margin orders from being converted into revenue. Going ahead, we expect performance to remain affected by volatility in RM prices, the impact of legacy projects as well as cost overruns in the Green Solutions business. Factoring in the 2QFY27 performance, we cut our estimates by 20%/17%/10% for FY27/28/29. In 1HFY27, we had already cut our FY27/28 estimates by 40%/20% for FY27/28. We thus also reduce our valuation multiple from 40x P/E to 30x P/E to factor in continued earnings cut led by losses in one segment after another, sub-par return ratios, as well as the fixed-price nature of the order book. We arrive at a revised SoTP-based TP of INR2,700 (vs INR3,700 earlier). A re-rating for the stock would be contingent on improvements in order inflows, execution, as well as margins across segments. The stock has already corrected by 48% from its 52-week high; and therefore, our rating changes from Sell to NEUTRAL.

Results below our estimates

Revenue increased 11% YoY to INR27.6b vs our estimate of INR29b. YoY growth was supported by growth seen in all segments. Gross margin contracted ~130bp YoY to 45.8% (vs. our estimate of 45.5%). Absolute EBITDA increased 13% YoY to INR1.9b. While gross margin was broadly in-line, EBITDA margin at 7% came below our est. of 8%, mainly due to higher employee cost. These factors led to PAT declining 5% YoY to INR1.1b (vs. our estimate of INR1.3b). Order inflow for the quarter declined 8% YoY to INR32.6b, taking the total order book at the end of Sep’26 to INR143b (+16% YoY). For 1HFY27, revenue increased 9% YoY to INR51b, while EBITDA/PAT declined 34%/50% YoY to INR2.6b/INR1.3, and margin contracted 340bp YoY to 5.2%. For 1HFY27, OCF increased 400% to INR3.6b supported by increase in other liabilities. It reported a free cash outflow of INR1.6b in 1HFY27 (vs. an outflow of INR3.1b last year).

Industrial product margins hit by revenue deferrals beyond commodity

Performance of industrial products was hit by deferred revenue, as highermargin export orders could not be shipped. The margin impact therefore went beyond the ~INR100-150m commodity hit, as fixed costs went unabsorbed and profitable orders shifted into 2H, taking the 1HFY27 segment margin to ~6%. With a wide range of products across heating, cooling, water, air pollution control, heat pumps and electric boilers, we expect inflow growth to be driven by 1) domestic and US data center cooling, 2) water (ZLD/ETP), and 3) new launches such as the automatic boiler. We bake in order inflow/revenue to clock CAGR of 13%/16% over FY26-29 and expect margins to improve gradually from 8.0% in FY27 to 10.5% by FY29, as operating leverage from higher volume starts to kick in.

Chemicals pricing action offsets styrene spike, but RM volatility persists

The Chemical segment’s performance was hit by a spike in styrene prices (a key raw material), driven by elevated crude oil prices, and supply disruptions at Middle Eastern and Chinese plants. The company has raised prices to pass on the cost pressure, offsetting most of the ~INR200-250m commodity impact in 1HFY27. These increases have held through Oct’26, and TMX plans to maintain them, expecting peers to follow as cost pressures are industry-wide. However, as long as raw material prices remain volatile, we expect margins in the chemicals division to stay under pressure. We build in 16% revenue CAGR over FY26-29, with EBIT margins of 8%/9%/10% for FY27/FY28/FY2

Valuation and view

Factoring in the 2QFY27 performance, we cut our estimates by 20%/17%/10% for FY27/28/29. The stock is currently trading at 62.7x/38.2x/29.2x on FY27E/FY28E/FY29E EPS. In 1HFY27, we had already cut our FY27/28 estimates by 40%/20% for FY27/28. We thus also reduce our valuation multiple from 40x P/E to 30x P/E to factor in continued earnings cut led by losses in one segment after another, sub-par return ratios as well as fixed price nature of the order book. We arrive at a revised SoTP-based TP of INR2,700 (vs INR3,700 earlier). A re-rating for the stock would be contingent on improvements in order inflows, execution, as well as margins across segments. The stock has already corrected by 48% from its 52- week high; and therefore, our rating changes from Sell to NEUTRAL.

Key risks and concerns

A slowdown in order inflows, a spike in commodity prices, a slower-than-expected revival in private sector capex, and increased competition are the key risks to our estimates.

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