Thermax: Focusing on green & differentiated solutions

15 Dec 2023 , 11:08 AM

Recommendation: Add; Target Price: Rs 3313

 

Analysts of IIFL Capital Services attended the inaugural edition of “Thermax Fest” organised by the management to showcase its next generation Clean Energy solutions developed in-house to further its journey of decarbonisation and Energy transition. Differentiated and niche solutions displayed included FlexiSource, Bio-CNG, THVAC, MVR – water treatment, Hydrogen, etc. Meher Pudumjee (Chairperson) emphasised on the group’s core values & efforts for long term value creation beyond conventional growth matrices. Renewed thrust on services, value accretive solutions approach to projects, drive for sustainable & broad based growth in products portfolio while building an annuity portfolio in green technologies will shape Thermax’s growth by 2030. Commercialisation and ramp-up of new technologies over longer term is to be seen. After recent correction, stock is trading at reasonable valuations of 33x FY26, retain ADD. 

Setting strategic priorities for 2030: 

1) Renewed thrust on domestic market. TMX will drive new green solutions first in the domestic market, once successfully established will be offered to global customers, 2) Conscious shift to provide differentiated offering & solutions to the customers, which will be margin and value-accretive, also reducing risks of building low margin large projects, 3) Edge portfolio to be supported by adequate expansion in teams, to step-up growth in services and 4) build annuity portfolio of US$1bn, through SPV level financing and on-board an external partner on maturity. 

Investing in Energy transition & leverage cross-selling: 

TMX is driving new products and services, targeting specific energy transition challenges of customers in its core industrial business, thereby establishing itself as a reliable partner. Bio-mass (CNG) was called out as a key area where TMX eyes market leadership with diverse applications and diverse feedstock. Coal gasification where TMX has a lead is yet to test commercially feasibility, based on government policies. 

Focus on long-term profitability: 

Domestic Industrial Product’s all time high OPMs are masked by investments in new solutions & loss from Indonesia. While R&D spend will see a material jump, much of it is captured in segment investments in new products. Annuity portfolio for green energy will turn profitable in 2 years once it attains a critical scale.