Reduce Thermax; target of Rs 4237: Prabhudas Lilladher

Prabhudas Lilladher's research report on Thermax

We revise our FY26E EPS by -6.6% factoring in operational challenges in Industrial Infra leading to lower margins. Thermax (TMX) reported 13.0% YoY revenue growth with EBITDA margin declining by 38bps YoY to 6.5%. Order pipeline remains robust across power, steel, refining & petrochemicals. Industrial Infra faced operational challenges in Bio-CNG and FGD projects, leading to the management adopting selective approach to order booking. However, large orders are expected to pick up pace. Meanwhile, Industrial Products is poised for double-digit growth driven by solutions for water treatment & air pollution control. Chemical business is on growth trajectory as supply chain issues ease. In Green Solutions business, TOESL continues to grow steadily. Although FEPL is expected to remain loss-making this year, it has a strong demand and order pipeline.
We believe TMX is well placed to gain from increasing thrust on energy transition & de-carbonization initiatives led by its 1) sustainable green industrial solutions in bio-energy, heating & cooling, chemicals, and water, 2) technical expertise, and 3) strong balance sheet & prudent working capital management.

Outlook

We maintain ‘Reduce’ rating with a revised SoTP derived TP of Rs4,237 (Rs3,923 earlier), valuing the core business (ex. Green Solutions) at a P/E of 50x FY26E (same as earlier).