Thermax (TMX IN) – Q1FY27 Result Update – Legacy overhang clouds Q1, order momentum key focus – REDUCE

We revised our EPS estimates by -13.3%/-2.6% for FY27E/FY28E factoring in lower margin amid the impact of legacy government EPC project losses in Industrial Infra, shipment delays in Industrial Products and higher input cost. Thermax (TMX IN) reported a weak performance, with revenue growing 9.4% YoY and EBITDA margin contracted 518bps YoY to 2.9% impacted by cost overrun on a legacy government EPC project (INR 910mn), delayed dispatches (INR3bn) of industrial products due to the Middle East conflict, commodity cost inflation (INR 100mn). While the Industrial Products segment continued to witness healthy underlying demand across heating, cooling, water treatment and air pollution control solutions, margins remained under pressure owing to adverse commodity movements and shipment deferments, although recovery expected from Q3FY27. The Industrial Infrastructure segment remained affected by legacy government EPC projects; however, management reiterated that the remaining exposure has reduced to less than ~5% of the order book and is expected to be substantially completed over the next few quarters. The Chemicals business continued to recover with improving volumes and management expects ~20% growth in FY27, supported by normalization in customer demand despite near-term raw material volatility. Meanwhile, Green Solutions remained loss-making due to losses in FEPL and Bio-CNG operations; however, management expects FEPL to onboard a strategic partner while Bio-CNG performance obligations are likely to conclude over the next few quarters, reducing execution and profitability risks. We maintain our rating to ‘Reduce’ valuing the core business (ex. Green Solutions) at a PE of 40x Mar’28E (39x Mar’28E earlier) arriving at a revised SoTP-derived TP of INR3,952 (INR3,969 earlier).