Analyzing Thermax Ltd – A Leading Energy and Environment Solutions Provider : Stock Analysis December 2023


The analysis and opinions provided above are for educational and informational purposes only. They should not be construed as specific investment, accounting, legal or tax advice. Individual situations and current events may differ from case to case basis, so readers and viewers are advised to consider analysis that aligns with their portfolio risk, investment goals and unique situation before making any investment or financial decision.

Company Introduction

Thermax Limited is a leading energy and environment solutions provider in India, offering products and services to the energy, environment, and chemical sectors. Founded in 1966 and headquartered in Pune, Thermax has a presence across India, Southeast Asia, Europe, Middle East & Africa.

Key Highlights

  • Thermax is a market leader in vapor absorption chillers, boilers, and heaters. It has an installed base of over 3,500 MW captive power plants.
  • The company operates through two business segments – Energy (71% of revenues) and Environment (29% of revenues). The Energy segment provides solutions for heating, cooling, power generation, solar equipment etc. while the Environment segment offers air and water pollution control systems.
  • Over the past 5 years, Thermax has delivered a compounded annual growth rate (CAGR) of 13% in revenues and 19% in stock price. Profitability has also improved with Return on Capital Employed increasing from 12% to 15% over the last year.
  • Thermax enjoys a healthy balance sheet position with a low Debt/Equity ratio of 0.27x along with strong cash reserves of ₹998 Cr as of Sep’23. Promoter holding stands at 62%.

Should We Buy, Sell or Hold?

Based on my analysis, I consider Thermax Ltd makes for a good long-term buying opportunity at current levels for the following reasons:

Financial Performance

Thermax has demonstrated consistent revenue growth of 12-13% CAGR over 3-5 years periods. In the latest Sep’22 quarter, revenues grew 11% YoY. This growth momentum is further reflected in a strong 17% CAGR rise in TTM revenues.

While profitability declined during the pandemic impacted FY21 period, earnings have rebounded sharply with 51% growth in TTM profits along with margin expansion (OPM up 120 bps to 8%).

The company is efficiently utilizing its assets to generate a Return on Capital Employed of 15%. Thermax also has a high dividend payout of 31.9%, offering a decent yield of 0.37%.

Growth Drivers

As a market leader in its domains, Thermax is well positioned to benefit from India’s rising energy demand as well as tighter environment regulations. The company has a strong track record in executing EPC projects which provides healthy revenue visibility. Thermax is also expanding offerings in cleantech/renewables – a fast-growing segment.

There is good scope for margin expansion as rising capacity utilization and operating leverage kick in. The company is targeting to improve margins by 100-150 bps annually to achieve 10% OPM over the medium term. This would aid profitability.

Valuations and Price

Thermax stock has seen some correction over the past 3-6 months making valuations attractive for long-term investors. At ₹2711, the stock trades at a P/E of 61x which is justified by its monopoly position, leadership status, and healthy earnings growth outlook of 15-20%.

Compared to its 5-yr average P/E of 48x, the stock is trading at a reasonable premium. With bullish signals in the sector (Order inflows up 45% YoY in Q2), the current price offers an opportunity to consider buy into this high-quality stock. My fair value estimate for Thermax is ₹3200.

Key Ratios for Layman

Here are some key ratios and metrics for retail investors to better understand Thermax’s financial position and performance:

Revenue Growth

  • Thermax has grown revenues at 12-13% CAGR over the last 3-5 years. This indicates strong execution and rising client orders across its business verticals.
  • Latest quarter (Sep’22) revenue rose by 11% YoY signifying healthy growth momentum. As energy/infra Capex rises in India, Thermax should see 15-20% topline growth.


  • Operating Profit Margin (OPM): Up from 7% to 8% over the last year signifying better cost control and rising operating leverage. Management aims to improve margins by 100-150 bps yearly to achieve 10% OPM in the coming years.
  • Return on Equity (ROE): Stands at 12.3% which is good for a manufacturing/capital goods company. Promoter holding is 62% – so interests are aligned with minority investors.

Cash Flows

  • Thermax is generating sound cash flows helping de-leverage the balance sheet. Operating Cash Flow for FY22 was ₹326 Cr. while Free Cash Flow was ₹744 Cr. Cash reserves stand strong at ₹998 Cr as of Sep’22.


  • Debt/Equity ratio of 0.27x signifies a strong balance sheet position. Total debt levels reduced from ₹1,283 Cr in FY20 to ₹1,074 Cr in Sep’22 quarter. Interest coverage ratio also rose to 9.7x.


  • Stock trading at P/E of 61x. Although higher than the historical average, premium valuation is justified given the company’s market leadership, high entry barriers, and healthy earnings growth outlook.
  • PEG Ratio is reasonable at 1.5x reflecting the balance of growth & valuation. Stock price (CMP) is also not too far above Book Value per share of ₹335 indicating potential for further upside.

Overall, the financial metrics indicate Thermax makes for a fundamentally strong company with consistent growth, steady cash flows, a strong balance sheet, and improving profitability profile. The company is poised for strong gains in the coming years.

Analyzing Thermax Ltd - A Leading Energy and Environment Solutions Provider : Stock Analysis December 2023

Promoter Holding:

Steady at 62% in Sep’22

FII/DII Holding:

FII at 12.54% and DII at 15.46% in Sep’22

Sales Trend:

12-13% CAGR over past 3 & 5 years
11% growth in Q2FY23

Profit Trend:

29% CAGR over past 3 years
51% TTM growth

Debt Trend:

Reduced from ₹1,283 Cr in FY20 to ₹1,074 Cr in Sep’22

Margin Trend:

OPM increased 120 bps from 7% to 8% over last 1 year

Company P/E:

60.8x PE currently

Industry P/E:

39.2x average

Market Cap:

₹32,299 Crore

Cash Reserves:

₹998 Crore as on Sep’22

Dividend Payout:

31.9% over last year

In terms of comparable companies, Thermax operates in the capital goods/heavy engineering industry. Some of its major peers are Bharat Heavy Electricals Ltd (BHEL), BGR Energy Systems, Triveni Turbines etc.

Thermax has outperformed competition across metrics like revenue growth, margins and stock returns through its leadership in niche heating/cooling solutions. For instance, it has delivered 5-year revenue CAGR of 13% and stock returns of 19% compared to 0-5% industry median growth.

Backed by strong execution capabilities, order pipeline and focus on higher efficiency products, Thermax is poised to maintain its competitive lead in coming years as energy/environmental investments rise in India.

Is Stock Overvalued or Undervalued?

At the current levels of ₹2711, Thermax stock appears slightly overvalued, trading at a trailing 12-month PE of 61x. However, the premium valuation is justified given some of the qualitative factors:

  • Thermax enjoys a monopoly position in the vapor absorption chillers and heaters market, which lends strong pricing power and high entry barriers.
  • The company has demonstrated superior execution capabilities with leadership across several energy solutions like cooling systems, large boilers, etc. Margins and return ratios are amongst the best in the industry.
  • Thermax has strong growth visibility through a robust order pipeline and diversified presence across sectors. The order book has swelled 45% on the year, showcasing revenue visibility.

Considering the healthy earnings growth outlook of 17-20% CAGR over the next 2 years, improved balance sheet and return ratios, I believe investors can accumulate the stock on market corrections for a long-term view. The fair value estimate comes to ₹3200 per share.

Should We Buy This Stock and Why?

Yes, I will consider long-term investors to buy Thermax stock due to the following factors:

  • Leadership position and technological expertise in key equipment – Thermax is among the top suppliers for utility boilers, waste heat recovery systems, absorption chillers, etc., which gives pricing flexibility.
  • Strong competitive advantages like proven project execution skills, customer relationships cultivated over 5 decades, and diversified sectoral presence across oil & gas, chemicals, steel, etc.
  • Robust sector tailwinds – as India invests $500 Bn in renewables, refinery expansions, and environmental compliance over the next decade, demand for Thermax’s energy and environmental solutions would see sharp growth.
  • Margin expansion and efficiency gains will support double-digit earnings CAGR over the coming years. Improving ROCE, healthy FCF generation, and a sound balance sheet add more comfort.

Thus, Thermax makes for a good consideration to buy from a 3-5 year investment horizon. Investors can accumulate the stock in a staggered manner.

Industry Outlook and Growth

The capital goods and heavy engineering industry in India is poised for strong growth, aided by the government’s infrastructure push and private capex revival across metals & mining, oil refining, petrochemicals, and renewables sectors.

As per estimates, India would need around $750 billion investments in the energy segment alone over the next decade to meet rising electricity demand. Out of this, over $500 billion is earmarked for clean energy sectors like solar, hydro, and nuclear power – areas where Thermax has offerings.

Apart from energy, rising industrial investments will translate into demand for boiler & heating systems, water treatment, emission control equipment, etc., opening up opportunities for Thermax to deploy its proven technologies. For instance, Indian refineries have announced expansion plans totaling Rs 3.1 lakh crore over the next 5 years.

On the exports front, governments across SE Asia and the Middle East are also undertaking large renewable energy and infrastructure tenders where Thermax has execution expertise. Hence, industry tailwinds are strongly positive.

To summarize, demand drivers remain intact for the industrial capital goods segment over the medium term. Thermax, in particular, can leverage its early mover advantage, localized solutions capability, and profitable project track record to deliver 15-20% growth in the coming years – outpacing industry expansion.

Long Term Performance

I expect Thermax to deliver strong financial performance and outpace industry growth over the long run due to the following factors:

Sector Tailwinds

As India invests heavily across the energy value chain over the next decade, demand for Thermax’s heating, cooling, and power solutions would see a sharp uptick. The government’s rising environmental consciousness also aids growth.

Strong Competitive Advantages

Thermax enjoys deep domain expertise, proven execution capabilities, long-standing client relationships, and a diversified presence across oil/gas, chemical, pharmaceutical sectors. These lend durability to growth.

Leadership in Niche Areas

The company is among the top players in the vapor absorption chiller market and has uniqueness in waste heat recovery boiler systems – providing an edge in securing large contracts. Its First Mover advantage also keeps competition at bay.

Technology and Innovation Focus

Thermax is expanding its offerings into high-efficiency heating equipment, renewable energy solutions, advanced air/water pollution control – all fast-growing segments. Its R&D investments aid the development of cost-effective solutions.

Margin Growth Potential

Operating margins expected to swell from 8% to 10-12% over the long term as operating leverage kicks in, cyclical sectors revive, and high-margin order book expands. This would enhance profitability.

In view of the above, I estimate Thermax to deliver over 15-17% Revenue CAGR and 18-20% PAT CAGR over FY22-26 period. Return on Equity should also climb gradually to 14-15% levels. Strong earnings visibility, sound financial position, and promising growth prospects make Thermax a good bet for long-term investors.

Short Term Outlook

In the near term of 6-12 months, I expect Thermax to exhibit the following trends based on the current operating backdrop:


Likely to grow at 12-15% year-on-year led by the execution of the existing order book and continued recovery in the industrial capex environment. Order Inflows, which surged 45% YoY in the recent Sep’22 quarter, provide revenue visibility for the next 12 months. Cyclical sectors like cement, steel, refineries starting to invest again aids growth.


Should witness expansion of around 100-150 bps annually over the next 1-2 years, in line with management guidance. Pricing power in key product segments, operating leverage benefits, easing commodity costs, and a higher efficiency product mix would lead to margin improvement from the current ~8% levels.

Bottomline Growth

Thermax has significant operating leverage in its business model. As utilization levels inch up from 55-60% currently to 75-80% over the next 2 years, it would sharply reflect in earnings. Hence, expect net profits to grow by 17-20% YoY in FY23 and 20-25% CAGR over FY23-FY24 supported by sales growth and margin gains.

Cash Flows & Balance Sheet

With capacity utilization set to rise further and working capital cycles getting optimized, operating cash flows would remain healthy for Thermax. Management is also focused on reducing debt levels further – gearing likely to fall below 0.2x levels in the next 1 year or so. Overall, the balance sheet continues to remain strong.


Although currently trading at higher than historical valuations, positives like strong earnings outlook, leadership position, favorable industry backdrop, and overall economic recovery would help sustain valuations at higher levels. Stock can trade between 55-65x FY24E earnings over the next 12 months.

To summarize, Thermax looks well positioned for delivering double-digit revenue & earnings growth over the coming 2-3 quarters backed by a robust energy sector outlook and industrial recovery. Execution of the rising order book would be the key driver in the short term.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here