Is Thermax’s High Valuation Justified After a 40% Fall? Here’s What You Need to Know

SYNOPSIS:
Thermax’s stock has fallen sharply amid weak Q2 results, cost overruns and margin pressure, yet remains highly valued as investors bet on management’s strong growth guidance, improving order flow and margin recovery ahead.

Thermax Limited, a leading energy and environment solutions provider, is engaged in the business that includes manufacturing, installation, sale and services related to industrial products, industrial infra and chemicals. The stock has fallen by around 28 percent in 2025 and nearly 40 percent in the last one year.

With a market cap of Rs. 33,900 crores, shares of Thermax Limited closed in the red at Rs. 2,845 on BSE, down by around 1 percent, as against its previous closing price of Rs. 2,868.75 on Friday’s trading session.

What went wrong?

Thermax’s weak quarterly performance was largely driven by execution bottlenecks, project cost overruns, and an unfavourable product mix, which collectively weighed on profitability across major divisions, particularly Industrial Infrastructure and Chemicals.

In Q2 FY26, Thermax reported a consolidated revenue from operations of Rs. 2,474 crores, an increase of around 15 percent QoQ but a marginal decline of more than 5 percent YoY. Meanwhile, its net profit stood at Rs. 119 crores, representing a decline of more than 21 percent QoQ and 40 percent YoY.

The revenue and profit for the corresponding quarter of the previous year were positively impacted by an accrual of Rs. 66 crore recognised as income towards incentives receivable under the Packaged Incentive Scheme (PSI), 2007, from the Government of Maharashtra.  The lower profit for the quarter is due to project cost overruns in the Industrial Infra segment, including Rs. 42 crore of additional cost provisions, primarily for a single project. 

For Q2 FY26, Thermax reported total segment revenue of Rs. 2,520.18 crore. Industrial Products contributed the largest share at Rs. 1,188.77 crore, accounting for 47 percent of total segment revenue. The Industrial Infra division generated Rs. 948.67 crore, contributing 37 percent. Green Solutions added Rs. 191.7 crore, forming 7.6 percent, while the Chemicals segment contributed Rs. 191.03 crore, also around 7.6 percent of the total. After adjusting for inter-segment revenue, total revenue from operations stood at Rs. 2,474 crore.

Profitability in the Industrial Infra segment remained under pressure due to cost overruns and weaker project margins. The Industrial Infra segment reported revenue of Rs. 948.67 crore in Q2 FY26, marking a notable decline when compared to the previous year’s figure of Rs. 1,247.6 crore in Q2 FY25. This represents a year-on-year drop of nearly Rs. 299 crore.

As of 30th September 2025, Thermax reported an order balance of Rs. 12,300 crore, up 6 percent YoY. Order bookings for the quarter also improved to Rs. 3,551 crore, reflecting a similar 6 percent YoY growth.

While overall order intake strengthened due to healthy momentum in the Industrial Products segment, the Industrial Infra business saw subdued inflows this year, owing partly to large project wins in the previous period that created a high comparative base.

Further, the stock is currently trading at a P/E ratio of 57.7, significantly higher than the industry average of 46, indicating that the market continues to value the company at a premium relative to its peers. Despite the weak performance in Q2 FY26, this elevated valuation suggests that investors are pricing in strong future earnings potential rather than focusing solely on near-term results.

Management has indicated a strong recovery ahead, noting that a significant revenue catch-up is expected in Q3, and that both Q3 and Q4 are likely to be strong quarters. They also reiterated that, despite the Q2 setback, the company should still deliver better profitability than last year. Additionally, they expect Thermax to grow more than 20 percent this year on the back of a healthy order book, with year-to-date domestic orders up 25 percent YoY and Q3–Q4 projected to be “very good.”

There has also been a positive shift in margin guidance. While earlier commentary pointed to mid-single-digit margin ambitions, management now targets an uplift of around 1 percent or slightly more, supported by easing depreciation at Thermax Babcock & Wilcox Energy Solutions Limited (TBWES) and a rising share of services in the revenue mix.

Although Thermax is navigating challenges on both revenue and profit fronts, investors appear willing to pay a significant valuation premium because they expect the company’s future growth trajectory to remain strong. The high P/E multiple signals that the market sees higher risk, but also the potential for meaningful long-term reward if management’s growth and margin outlook materialises.

Conclusion

Thermax’s current valuation appears stretched when judged against its recent performance, but investors seem willing to overlook near-term weakness in anticipation of a stronger second-half recovery, improving margins and robust order visibility. Ultimately, the high P/E is justified only if management’s growth outlook materialises as guided.

Written by Shivani Singh

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