Thermax targets margin recovery as data-centre cooling pipeline supports growth

Investment View and Business Profile

ICICI Securities’ August 3, 2026 report on Thermax Ltd. retains a BUY recommendation. The brokerage argues that near-term operational pressures are predominantly legacy-related, while the company’s order pipeline and data-centre opportunity support medium-term growth.

Thermax provides integrated energy and environment solutions across heating, cooling, power, water and waste management, air-pollution control and chemicals. Its revenue mix comprises Industrial Infra at about 47 per cent, Industrial Products at about 40 per cent, Green Solutions at about 6 per cent and Chemicals at about 7 per cent.

Q1FY27 Performance and Legacy Issues

Thermax reported a weak Q1FY27. The key drags were a Rs 91 crore provision for a legacy government EPC project, around Rs 300 crore of shipment delays, mainly exports, commodity-cost inflation, and losses at FEPL and in Bio-CNG. Management characterised these pressures as legacy issues rather than structural weaknesses.

The problematic Rs 1,200 crore government project is in its final phase, with about 26 per cent execution still pending. Government and PSU exposure in the order book has reduced to below 5 per cent, or about Rs 300 crore to Rs 400 crore. Thermax has exited bidding for low-margin, high-risk government EPC projects, and management expects FY27 to mark the end of these legacy issues.

Order Backlog and Growth Outlook

Management expects a strong and profitable backlog to produce two to three quarters with revenue above Rs 3,000 crore. This is expected to improve operating leverage and margins from Q2/Q3 FY27 onwards.

ICICI Securities identifies the following as important monitorables:

• Timely execution of the large order backlog.
• Conversion of the order pipeline into revenue.
• Sustained improvement in operating margins.

Despite weak Q1FY27 performance, management remains confident of exceeding about Rs 14,000 crore of order inflows in FY27. The pipeline spans domestic and international opportunities in TBWES, industrial products, chemicals, water and clean-energy businesses.

Data-Centre Cooling Opportunity

Data centres are an emerging long-term growth driver for Thermax. The company has about Rs 400 crore of US data-centre cooling order backlog, which is expected to be executed over the next few quarters. Management expects two additional US cooling order wins in Q3/Q4 FY27.

ICICI Securities believes Thermax’s differentiated cooling technology, combined with its boilers, water-treatment and specialty-chemicals capabilities, positions it to benefit from rising global data-centre investment.

Financial Forecasts

Revenue is forecast to rise from Rs 10,686.8 crore in FY26 to Rs 12,113.8 crore in FY27E and Rs 15,571.6 crore in FY28E, implying a FY26-FY28E CAGR of 20.7 per cent. Net profit is estimated to record a FY26-FY28E CAGR of 17.3 per cent.

Valuation and Key Risks

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

Key risks to the outlook are:

• Lower-than-expected order inflows.
• Commodity-price volatility.
• Delays in execution.