Thermax’s H2 recovery bet runs into old execution hurdles

Thermax’s share price has more than halved from its 52-week high of ₹5,277.80 seen in June, weighed down by continued earnings disappointment.

In the September quarter (Q2FY27), deferred higher-margin international shipments, worth ₹200–300 crore, capped consolidated revenue growth at 11% year-on-year (y-o-y) to ₹2,756 crore.

Management expects H2FY27 revenue to touch ₹7,000 crore versus ₹5,059 crore in H1. Revenue growth will be buoyed by export orders and lower contribution from low-margin legacy projects nearing completion.

Order inflows fell 8% y-o-y to ₹3,259 crore, driven by weak intake in the industrial products segment. H1FY27 order inflows slid 4% to ₹6,100 crore, taking the order book as of September to ₹14,250 crore, up 16%.

From its earlier guidance of over 10% growth in FY27 order inflows, Thermax now anticipates high single-digit growth. It expects at least one supercritical boiler order in H2.

However, JM Financial Institutional Securities noted that even if one large thermal power win is factored in, FY27 order inflow growth is likely to be only 5%.

“Investors are occasionally enthused about the potential for order wins in the thermal power space, which seems fair. However, given the chronic execution issues Thermax continues to face, especially in PSU projects in India, we will be wary of such wins unless management addresses fundamental project engineering and execution issues,” it said.

Margin pressure

Moreover, the fixed-price nature of Thermax’s order book means margin dilution if commodity inflation persists. Q2FY27 Ebitda margin at 7% was flat year-on-year, impacted by commodity cost inflation in industrial products and chemicals, delayed international shipments and project impairment in green solutions segment.

The management expects margin recovery from Q3 and is confident of sustaining a high single-digit margin.

Although Thermax has new growth drivers such as data centre solutions, utility power projects, and the ramp-up of its chemical business, re-rating is a distant dream unless execution meaningfully improves, coupled with better margins.

Factoring in the Q2FY27 performance, Motilal Oswal Financial Services has cut FY27/FY28/FY29 estimates by 20%/17%/10%. It has also reduced its two-year forward price-to-earnings multiple from 40 to 30 to account for continued earnings cuts, driven by losses in one segment after another, sub-par return ratios, and a fixed-price order book.