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Thermax Ltd. Shares Jump Over 5% on Strong Brokerage Upgrade
Shares of Thermax Ltd. experienced a significant surge on Friday, trading more than 5% higher. This upward movement was triggered by a strong upgrade from Kotak Institutional Equities, a leading brokerage firm. The firm elevated its rating on Thermax to 'Buy' from its previous 'Add' rating. Accompanying this upgrade, Kotak Institutional Equities set an ambitious price target of ₹3,575 per share, which suggests a substantial potential upside of approximately 28% from the stock's closing price on Thursday.
Kotak Institutional Equities emphasized that the recent correction in Thermax's stock price has created an attractive entry point for investors. The brokerage believes the company is strategically positioned for accelerated growth and improved profit margins. Thermax is expected to benefit from the scaling up of its existing business operations, successful geographical expansion efforts, and the profitable addition of new business lines, underscoring a diversified growth strategy.
Financial Implications and Margin Improvement
The brokerage anticipates that margin improvements for Thermax are set to materialize significantly in the coming periods. Several factors contribute to this positive outlook. These include a projected decline in the proportion of troubled or problematic orders, a notable rebound in the company's underutilized chemical business segment, and the strengthening of the products segment performance due to favorable business mix effects.
Kotak Institutional Equities has forecasted pro forma earnings per share (EPS) of ₹72 for the fiscal year 2025. This calculation has been adjusted to account for potential losses within specific project portfolios, such as the Bioenergy, NRL, and FGD orders, as well as the solar captive business. The brokerage views the current valuation as attractive, with the stock trading below 40 times these pro forma trailing earnings, especially after its recent market correction.
Market Reaction and Expert Analysis
The market responded enthusiastically to the positive brokerage report, propelling Thermax Ltd.'s stock price higher in early trading. The current trading price stands at ₹2,877. Despite this recent gain, the stock has experienced a decline of 27% year-to-date in 2025, making the current valuation appear more appealing to investors looking for potential turnaround stories. Kotak Institutional Equities views Thermax India as a standout among diversified capital expenditure plays due to the consistent strength of its order inflows, which are not heavily reliant on sporadic, large orders.
A significant order win during the third quarter has reportedly increased the year-end order backlog by 15% year-on-year, substantially enhancing revenue visibility for the company. Looking forward, Kotak projects that a major portion of margin normalization will take shape between FY25 and FY28. The firm assumes a healthy compound annual growth rate (CAGR) of 12% in revenues during this projected period, indicating expectations of sustained expansion and profitability.
Impact
This favorable upgrade and price target revision by a reputable brokerage firm like Kotak Institutional Equities is likely to significantly boost investor confidence in Thermax Ltd. The news could also positively influence sentiment towards other companies operating within the industrial capital goods sector in India. The projected 28% upside potential suggests strong conviction in Thermax's future performance, potentially attracting increased investor interest and capital into the stock and its associated sector. For existing shareholders, this development provides validation and a strong catalyst for potential capital appreciation.
Impact Rating: 7/10
Difficult Terms Explained
- Pro forma earnings per share: Earnings calculated as if a particular event, such as an acquisition or restructuring, had occurred at the beginning of the reporting period, providing a hypothetical view of financial performance.
- Trailing earnings: The earnings per share of a company over the past twelve months, offering a recent historical perspective on profitability.
- CAGR (Compound Annual Growth Rate): The average annual growth rate of an investment or revenue over a specified period longer than one year, smoothing out volatility to show steady growth.
- Diversified capital expenditure plays: Companies that invest in a range of capital assets across various industries, indicating broad exposure to economic growth and industrial development.
- Lumpy orders: Large, infrequent orders that can cause significant fluctuations in a company's financial results from one reporting period to another.
- Revenue visibility: The degree to which a company's future revenue can be predicted with certainty, often based on existing contracts, order backlogs, and recurring business.
- Margin normalization: The process by which profit margins return to their typical, expected, or historical average levels after experiencing periods of unusually high or low profitability.
- Underutilized business: A segment or part of a company's operations that is not being used to its full capacity or potential, indicating room for growth and efficiency improvements.
- Products segment: Refers to the specific division or part of a company that is primarily involved in the manufacturing and sale of physical goods.