An exceptionally robust stock Thermax Limited is currently trading at a 38% discount, making it a compelling option to monitor closely
Thermax Limited : Thermax Limited, a prominent provider of engineering solutions in the energy and environment sectors, is currently trading at a 37 percent discount from its 52-week high. Despite this, the company boasts strong fundamentals, including an impressive 24.85 percent revenue compound annual growth rate (CAGR), making it an intriguing prospect for investors to consider.
The global chemicals industry is poised for significant growth by 2025, with projections indicating an expansion from $6,182 billion in 2024 to $6,324 billion. Key trends driving this growth include a heightened emphasis on sustainability, with companies increasingly investing in green chemistry and recycling technologies. The Asia-Pacific region, particularly India and China, is expected to lead production in this sector. Additionally, digital transformation and the electrification of processes are becoming increasingly vital as firms strive to adapt to evolving market demands and regulatory pressures, all while maintaining resilience and fostering innovation in a competitive landscape.
In terms of price movement, Thermax Limited’s stock closed Wednesday’s session at Rs. 3,813 per share, marking a 2.06 percent increase from the previous closing price of Rs. 3,736. Over the past year, the stock has delivered a return of approximately 20 percent, outperforming the Nifty Index during the same period.
Business Segments
In the recent September 2024 results, the company’s revenue is derived from various segments. Industrial products accounted for approximately 39.67 percent, Industrial Infra contributed around 46.61 percent, Green Solutions made up about 6.56 percent, and the remaining 7.13 percent came from Chemicals.
Orderbook and Performance
The Q2 order book reflects a diverse range of sectors, with mining leading at 32 percent, followed by Food and Beverages at 8 percent, paper and pulp at 7 percent, and sugar or distillery at 6 percent. The company maintains a stable order base with strong interest from sectors such as steel, chemical, and F&B, as well as positive momentum in the biofuel sector.
The consolidated performance demonstrates significant growth, particularly in Industrial Infra, which saw a remarkable 167 percent year-on-year increase in Q2 order bookings, totaling Rs. 1,748. Overall, total order bookings grew by 70 percent year on year, reaching Rs. 3,353. The company’s overall order balance increased by 13 percent year on year to Rs. 11,593 as of YTD September 2024.
Future Outlook
The company is expanding its renewable energy portfolio through First Energy Private Limited (FEPL), aiming for a 600 MW capacity in the near term and targeting 1 GW by FY27-28 with an initial investment of Rs. 700 crores. In the hydrogen sector, Thermax plans to invest Rs. 100 crores over the next 18 months to develop products and establish manufacturing capabilities for a 100-300 MW capacity. Additionally, Thermax anticipates continued government incentives based on production over the next three years.
Financial Performance
The Q2FY25 results of The Thermax demonstrate a significant increase in revenue from operations, reaching Rs. 2,612 crore. This represents a 13.46 percent year-on-year growth from Rs. 2,302 crore in Q2FY24 and a 19.59 percent increase from Rs. 2,184 crore in Q1FY25. Additionally, the net profit saw a substantial rise of 24.52 percent year-on-year, climbing from Rs. 159 crores in Q2FY24 to Rs. 198 crores in Q2FY25. On a quarterly basis, profits surged by an impressive 81.65 percent from Rs. 109 crore.
The debt-to-equity ratio slightly declined to 0.25 times from 0.16 times in FY23. The Return on Equity (RoE) for FY24 improved to 15.48 percent from 12.25 percent a year earlier, while the Return on Capital Employed (RoCE) stood at 17.87 percent, showing an increase from 14.53 percent in FY23.
Shareholding Pattern
As of September 2024, the shareholding pattern of The Thermax reveals that promoters hold a 61.98 percent stake, with Foreign Institutional Investors (FII) holding approximately 15.38 percent, Domestic Institutional Investors (DII) at 12.72 percent, and public holdings at 9.92 percent.
Brokerage Target
Motilal Oswal, a reputable brokerage firm, has set a ‘Neutral’ Target of Rs. 4,400 for The Thermax, indicating a potential upside of 17.45 percent from the previous closing price. The brokerage anticipates a 22 percent year-on-year revenue growth and an expansion of EBITDA margin by 130 basis points to 9.4 percent. Key areas of focus include the large order pipeline, margin outlook, and the industrial infra and chemicals segment.
About the Company:
Thermax Ltd, headquartered in Pune, is a multinational engineering conglomerate established in 1966. Specializing in sustainable solutions for energy and the environment, Thermax offers integrated services in heating, power generation, cooling, water treatment, and air pollution control. The company’s business model centers around designing and manufacturing large boilers, turnkey power plants, and wastewater treatment systems. Operating globally, Thermax places a strong emphasis on innovation and sustainability, assisting industries in enhancing resource productivity while reducing environmental impact.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.