Thermax Ltd recently invested ₹115 crore in its wholly owned renewable energy arm, First Energy Private Ltd (FEPL), which helps customers transition to green energy and offers sustainable solutions.
While sentimentally positive, the move is unlikely to materially alter the stock’s fortunes—it has fallen 33% over the past year. Persistent execution challenges continue to cloud the company’s revenue and margin trajectory, even as order inflows improve. In the June quarter (Q1FY26), order inflows rose 7% year-on-year to ₹2,748 crore, driven by a large win in the industrial infrastructure segment. The order book grew 7% year-on-year to ₹11,376 crore in Q1.
Order enquiry pipeline is robust and international demand is also picking up in West Asia, Southeast Asia, and Latin America, the management had said in the Q1 earnings call. This should raise the order inflows traction Q2 onward. Thermax is eyeing double-digit order inflow growth in FY26. But unless execution picks pace, key earnings metrics may languish despite higher order inflows. Q1 consolidated revenue declined around 2% year-on-year.
In a recent interaction with PL Capital, the Thermax management said they are optimistic of seeing a minimum of around 10-11% revenue growth CAGR (compound annual growth rate) over the next five years with better margins.
While the management expects an execution uptick in H2FY26, PL Capital cautions that execution challenges will remain a key monitorable for the stock in the short term. After all, margin performance hinges on that. Thermax clocked an Ebitda margin of 10.5% in Q1 aided by stronger gross margin and benefit from Package Scheme of Incentives (PSI).
Excluding PSI, operating margin was modest at 8.1%. Thermax is targeting 12-13% margin growth in Q2. Apart from an execution fix, Thermax also has exposure to low-margin legacy projects worth ₹700 crore in its order book which can hinder speedy margin improvement. Margins in the industrial infrastructure and bio-CNG projects could be under near-term pressure as legacy projects in these businesses will complete in FY26 and the remaining in FY27.
However, for new projects, Thermax is now following a selective approach and trying to maintain better margins.
According to Nuvama Research, the stock’s trajectory will hinge on Thermax’s ability to sustain or exceed its base quarterly order inflow of around ₹2,500 crore, execute projects on time (especially in industrial infrastructure, which forms a large part of the order book), reduce losses at FEPL, and ensure prudent capital allocation.
