Thermax Stock Surge Alert? Analyst Upgrades Rating, Reveals New Price Target After Correction!

Author

Simar Singh | Whalesbook News Team

Detailed Coverage:

Prabhudas Lilladher's latest research report on Thermax Limited indicates a strategic shift, upgrading the stock's rating from 'Hold' to 'Accumulate' and revising the target price to Rs 3,513 from Rs 3,633. This upgrade comes despite a cut in Earnings Per Share (EPS) estimates by 8.0% and 3.5% for FY27 and FY28 respectively, attributed to ongoing execution challenges and cost overruns within the Industrial Infra segment.

Thermax reported a muted second quarter with revenue declining 3.0% year-on-year and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins contracting by 137 basis points to 7.0%. The performance was primarily impacted by issues in the Industrial Infra projects. However, most of these low-margin projects are scheduled for completion in the second half of FY26, which is expected to clear the way for a healthier backlog in FY27.

In the Industrial Products segment, growth in high-margin heating equipment was slower than expected, impacting the segment's overall product mix due to faster growth in lower-margin Water and Enviro businesses. Nevertheless, orders remained robust, with sustained traction anticipated across Water, Enviro, and Heating segments through H2FY26. The Chemicals segment is showing early positive signs from recent investments, with quarterly order bookings projected to stabilize around Rs 2.5 billion.

The Green Solutions segment reported significant margin improvement driven by operational efficiencies. Management has reaffirmed its commitment to invest approximately Rs 7.5 billion to achieve 1 GW capacity, signalling a strong focus on future growth in renewable energy solutions.

Outlook: The stock is currently trading at a Price-to-Earnings (PE) ratio of 44.6x and 39.6x for FY27 and FY28, respectively. The brokerage has rolled forward its valuation to September 2027 estimates and is valuing the core business (excluding Green Solutions) at a PE of 38x Sep'27E, down from 40x Mar'27E. This re-evaluation, factoring in the recent sharp correction in stock price, leads to the revised SoTP-derived Target Price (TP) of Rs 3,513.

Impact: This upgrade and revised target price are likely to instill renewed investor confidence in Thermax Limited, potentially leading to positive price movement in the stock. Investors may view the brokerage's positive outlook as a signal to accumulate shares, especially after the recent correction. The focus on clearing low-margin projects and the growth potential in Chemicals and Green Solutions are key drivers for future performance. The rating change from 'Hold' to 'Accumulate' suggests that analysts believe the stock offers good value at its current price level for potential capital appreciation.

Rating: 8/10

Heading: Definitions of Difficult Terms: * **EPS (Earnings Per Share)**: This is a company's net profit divided by the number of its outstanding common shares. It indicates how much profit is generated for each share of stock. * **EBITDA margin**: This is a profitability ratio that measures a company's operating profit as a percentage of its revenue. It shows how efficiently a company is managing its operations before considering interest, taxes, depreciation, and amortization. * **PE (Price-to-Earnings) ratio**: This is a valuation metric that compares a company's current stock price to its earnings per share. It helps investors understand how much they are paying for each dollar of earnings. A higher PE ratio may suggest that investors expect higher future earnings growth. * **SoTP (Sum of the Parts)**: This is a valuation method where a company is valued by adding up the estimated market values of its different business segments or assets. It's used for diversified companies. * **TP (Target Price)**: This is a price level that a financial analyst or brokerage firm predicts a stock will reach within a certain timeframe, usually 12 months.