Prabhudas Lilladher has lowered its outlook on Thermax following a sharp drop in quarterly profit margins. The brokerage cited legacy project losses and supply delays as primary concerns, while noting that a recovery in the industrial segment may take until the third quarter of FY27.
Thermax Limited is facing investor scrutiny after brokerage firm Prabhudas Lilladher revised its outlook on the stock, setting a target price of ₹3,952. The adjustment follows a difficult quarter where the company saw revenue grow by 9.4% compared to the previous year, yet profit margins fell sharply by 518 basis points to 2.9%. This decline in profitability highlights the impact of cost overruns and operational delays on the company's financial health.
Impact of Legacy Projects and Global Disruptions
A major factor weighing on the company’s performance is a legacy government Engineering, Procurement, and Construction (EPC) project, which resulted in losses of approximately ₹910 million. Additionally, the company faced shipment delays worth ₹3 billion for its industrial products, largely due to ongoing conflicts in the Middle East. These factors, combined with a ₹100 million increase in costs related to raw materials, have placed significant pressure on the firm's bottom line. Management has stated that the remaining exposure to these legacy government projects is now less than 5% of the total order book and is expected to be finished in the coming quarters.
Segmental Performance and Future Outlook
While the Industrial Products segment—which covers heating, cooling, and water treatment solutions—continues to see steady underlying demand, margin pressure remains a hurdle. Management anticipates that this segment will begin to see a more stable recovery starting in the third quarter of fiscal year 2027. Meanwhile, the Chemicals business is showing signs of a turnaround, with management projecting growth of around 20% for FY27 as customer demand normalizes.
The Green Solutions segment is currently not profitable, largely due to challenges within the FEPL and Bio-CNG operations. The company is actively looking for a strategic partner for its FEPL business to help stabilize these operations. Investors should note that the performance obligations related to Bio-CNG are expected to conclude shortly, which could help reduce some of the current execution and profit-related risks.
Valuation and Next Steps
Prabhudas Lilladher has lowered its Earnings Per Share (EPS) estimates for FY27 by 13.3% and for FY28 by 2.6%. The firm continues to maintain a 'Reduce' rating on the stock, applying a price-to-earnings multiple of 40 times the estimated earnings for March 2028. For shareholders, the most important areas to track will be the progress on closing out legacy government projects, the success of finding a strategic partner for FEPL, and whether the anticipated margin recovery materializes as planned in the later quarters of FY27.