Research house Jefferies India Pvt Ltd remains upbeat on Thermax Ltd. In its latest report, Jefferies pointed out that a change in business model of Thermax points to strong earnings recovery, so it has maintained its ‘buy’ recommendation on the stock.
Investors will remember that Ashish Bhandari took charge as the managing director and chief executive officer of the company in 2020 and since then has been focussing on leveraging the company’s environment, social and governance (ESG) offerings.
“Thermal captive power projects account for just 10-15% of Thermax’s revenues vs 50%+ in earlier years. 70%+ of orders is driven by green offerings. Higher margin products and services is 50-55% vs 39% in FY18,” added the Jefferies report.
With ESG theme fast catching up in India and globally, Thermax is likely to benefit from it. “Contrary to perception, Thermax is a beneficiary of corporate India’s moving focus to ESG. W2H recovery, biomass plants, solar opex, absorption chillers, water and waste treatment chemicals account for over 60% of Thermax’s revenues,” the report added.
On the flipside, rise in commodity prices and inability to pass them on is among the key risks for the company. “We reduce our FY22E-23E EPS by 5-6% to factor the recent commodity spike and look forward to margins normalising in FY24E,” Jefferies said.
It should be noted that for FY22, the company expects margins to be in the range of 7-7.5%. However, in the longer term, this will be at 15-17%.
Apart from that, investors also need to keep a close watch on the company’s market share and capital allocation strategies.
Meanwhile, in the last one year, shares of the company have risen by around 38%, beating the S&P BSE Capital Goods index which rallied by 21% in the same time span.