Thermax data centre pipeline and legacy project exit support margin recovery

Investment View and Business Overview

ICICI Direct Research’s July 31, 2026 report retains a BUY recommendation on Thermax Ltd with a target price of Rs 5,140, compared with a CMP of Rs 4,308. The brokerage views the weak Q1FY27 profitability as being largely driven by legacy issues rather than structural weaknesses.

Thermax provides integrated energy and environment solutions across heating, cooling, power, water and waste management, air pollution control and chemicals. Its key segments are Industrial Infrastructure, accounting for about 47 per cent of revenue; Industrial Products, about 40 per cent; Green Solutions, about 6 per cent; and Chemicals, about 7 per cent.

Q1FY27 Financial Performance

Thermax reported weak Q1FY27 results. Consolidated revenue increased 6.7 per cent year-on-year to Rs 2,303 crore, while EBITDA declined 69.5 per cent to Rs 68.6 crore. EBITDA margin contracted 745 basis points year-on-year to 3.0 per cent, and PAT fell 85.6 per cent to Rs 21.8 crore.

Management attributed the profitability decline to a Rs 91 crore increase in estimated cost-to-complete for one Industrial Infrastructure project, lower export sales in Industrial Products and the absence of Rs 56 crore of PSI income recognised in Q1FY26. Approximately Rs 300 crore of finished goods could not be shipped, largely because of elevated freight costs and shipment delays linked to the Middle East conflict, affecting both revenue and margins.

Order Book and Data-Centre Opportunity

Order inflow grew 2 per cent year-on-year to Rs 2,809 crore, while the order book expanded 23 per cent to Rs 14,045 crore, supporting medium-term revenue visibility. Thermax secured a Rs 400 crore-plus US data-centre order for boiler pressure parts in Q1FY27.

Management expects FY27 order inflows to exceed approximately Rs 14,000 crore, supported by domestic and international opportunities across TBWES, Industrial Products, chemicals, water and clean energy. The US data-centre order backlog of around Rs 400 crore is expected to be executed over the next few quarters, with two further US cooling orders expected in Q3FY27 or Q4FY27.

ICICI Direct believes Thermax’s cooling technology, boiler systems, water treatment and speciality chemicals position the company to benefit from global data-centre investment.

Segment Performance

Industrial Products revenue increased 11.4 per cent, but EBIT declined 19.0 per cent to Rs 64.2 crore and margin fell to 6.1 per cent from 8.3 per cent because of input costs and weaker exports. Industrial Infrastructure revenue fell 2.8 per cent and recorded an EBIT loss of Rs 70.7 crore, principally due to the project cost overrun. Green Solutions’ EBIT loss widened, although management expects improvement as renewable projects are commissioned. Chemicals benefited from volume growth and product mix, with EBIT up 59.5 per cent to Rs 25.6 crore and margin improving to 10.5 per cent.

Legacy Project Exit and Management Outlook

The problematic legacy government project is worth approximately Rs 1,200 crore and was 74 per cent executed. Completion is expected over the next four quarters. Remaining government and PSU exposure in the order book has declined below 5 per cent, or about Rs 300 crore to Rs 400 crore.

Thermax has stopped bidding for low-margin, high-risk government EPC projects. Management expects two to three quarters of revenue above Rs 3,000 crore, profitability improvement from Q2FY27, Industrial Infrastructure margins to trend towards 10 per cent-plus and legacy government-project exposure to become negligible by FY27-end.

Management also expects to announce its first hydrogen project through HydrogenPro in the following quarter and commission a commercial SOEC demonstration plant by year-end.

Earnings Forecasts and Valuation

ICICI Direct forecasts revenue and PAT CAGRs of 20.7 per cent and 17.3 per cent, respectively, over FY26 to FY28E. Its estimates are as follows:

The Rs 5,140 target price is based on 55 times FY28E EPS.

Key Risks and Monitorables

• Lower-than-expected order inflows.
• Commodity-price volatility.
• Delays in execution.
• Timely backlog execution, conversion of the pipeline into revenue and sustained margin recovery remain key monitorables.