Sell Thermax; target of Rs 3000: Motilal Oswal

Motilal Oswal's research report on Thermax

Thermax’s (TMX) 2QFY26 results came in sharply below our expectations on lower than-expected order inflows, execution and margins. As highlighted earlier (link), we were concerned about the impact of legacy projects and US tariffs on the industrial infra and chemical segment’s margins and this impact was more severe than our expectations in 2QFY26. The order prospect pipeline remains strong across metals and mining, refineries, thermal and fertilizer, and TMX expects healthy inflow ramp-up in 2HFY26. We do expect TMX to benefit from its strong product portfolio and improved margins in industrial product division. However, the lingering impact of legacy margins can continue to impact performance for the next 2-3 quarters. We cut our estimates by 9%/10%/9% for FY26/27/28 and revise our SoTP-based TP to INR3,000 on two-year forward earnings (from INR3,450 earlier). Reiterate Sell.

Outlook

The stock is currently trading at 49.2x/42.4x/35.4x on FY26E/FY27E/FY28E EPS. We reiterate our Sell rating with a revised TP of INR3,000, based on 38x two-year forward EPS for the core business.