Thermax (TMX IN) – Q4FY26 Result Update – Execution improving amid input pressures – Downgrade to ‘Reduce’

Thermax (TMX IN) reported a healthy performance, with revenue growing 10.7% YoY and EBITDA margin expanding 88bps YoY to 10.6%. During the quarter, a large INR16.3bn boiler order and improving operational efficiencies in the Industrial Infra segment supported stronger consolidated order inflows and margin expansion. In Industrial Products, healthy traction in heating, cooling and water & waste solutions continue to support growth prospects, although an unfavorable product mix weighed on profitability. Meanwhile, the Chemicals segment faced margin pressure due to supply chain disruptions and higher raw material costs, while Green Solutions continued to report losses owing to project cost overruns. Although management did not witness any significant impact from the Middle East conflict in Q4FY26, it remains cautious on near-term headwinds including gas unavailability impacting fabrication activities, rising raw material costs and supply chain disruptions across Chemicals and Industrial Infra in H1FY27. Separately, data centers are emerging as a meaningful growth opportunity for the company’s cooling and heating solutions, with a few international orders expected to materialize over the coming quarters. We roll forward to Mar’28E (Sep’27E earlier) and downgrade our rating from ‘Accumulate’ to ‘Reduce’ due to recent sharp increase in stock price valuing the core business (ex. Green Solutions) at a PE of 39x Mar’28E (37x Sep’27E) factoring in robust prospects from data centers arriving at a revised SoTP-derived TP of INR3,696 (INR3,374 earlier). Downgrade to ‘Reduce’.