Thermax Limited

Thermax reported a flat revenue performance in Q1 FY26, with a negative 2% year-on-year growth, marking a departure from the positive trend of the last three years. This was primarily attributed to project pushouts by customers, who delayed equipment pickup due to slow project sites, early rains, and civil work not being completed on time. Despite the revenue stagnation, the underlying profitability saw a 1.2% improvement in margins, even after accounting for a ₹56 crore impact from government incentives. The order book grew by 7% year-on-year, though this was below management's expectations.

The Chemicals business experienced a steep decline in EBIT margin, falling to 9.3% in Q1 FY26 from 17.8% in the previous year. This compression was due to several factors, including depreciation from new capacity in Jhagadia coming online, cost impacts from adding capacity and manpower for international growth (Indonesia, Southeast Asia), and one-time^📎 gratuity-related costs. Management expects Chemicals margins to recover to 12%-13% in Q2 FY26. A significant concern is the potential impact of new US tariffs, with Thermax's total US exposure (Chemicals and Cooling products) being around $30 million, though the immediate Q2 impact is expected to be less severe.

The Industrial Products segment, particularly its heating component, is anticipated to rebound strongly in Q2 FY26, supported by a robust pipeline. While the ethanol sector, a key market for heating, experienced a slowdown, inquiries remain strong. The Water and Enviro sub-segments continue to grow, driven by products like desalination and zero liquid discharge. New product offerings, including advanced heat pumps (110-degree and 120-degree models) and electric boilers, are gaining significant traction, with electric boilers now selling over 10 units per quarter, exceeding initial expectations. The pipeline for these new products is estimated at close to ₹100 crores.

The overall order book grew by 7% year-on-year, but this was below management's expectations. The backlog for Q1 conversion was approximately ₹2,400 crores, but actual conversion was lower due to customer-induced project delays. Management highlighted a ₹700 crore portion of the Industrial Infra backlog, termed 'bad stuff,' which is expected to be largely cleared this year, with about ₹200 crores extending into Q1 FY27. The inquiry pipeline remains robust across sectors, including power and thermal power, with expectations of a 'reasonable bump' in orders in Q2, especially for large projects.

Thermax is actively pursuing growth in Green Solutions, targeting 300-400 megawatts of new projects for FY26. Delayed projects in Tamil Nadu are now expected to become revenue-generating by August/September. The company is investing significantly in R&D, with successful commercialization of advanced heat pumps (110-degree and 120-degree models) and a new lower-footprint, lower-energy ZLD innovation set for formal release in August. Projects like hydrogen, carbon capture, and advanced biofuels are longer-term initiatives, expected to show results in 2-3 years.

Thermax's international business continues to improve, particularly in the Middle East, with a developing pipeline in Africa and Latin America. The company aims to cross ₹1,000 crores in international order book (exports from India). Management noted that export projects generally yield higher margins compared to domestic projects. While facing aggressive pricing from Chinese competitors, especially in Southeast Asia, Thermax leverages its capability to design and provide tailored solutions, along with after-sales services, to maintain competitiveness. The company is also working to qualify for larger projects with major international clients like ADNOC.