Research house Jefferies India Pvt Ltd is bullish on Thermax Ltd. In its latest report, Jefferies pointed out that the change in Thermax’s business model points to stronger earnings, so it has maintained its ‘buy’ recommendation on the stock.
Investors will recall that Ashish Bhandari took over as the company’s managing director and chief executive officer in 2020 and has since been focused on leveraging the company’s environmental, social and governance (ESG) offerings.
“Thermal captive power projects account for just 10-15% of Thermax’s revenue versus 50%+ in earlier years. 70%+ orders are driven by green offerings. High-margin products and services 50-55% in FY18 versus 39%,” added the Jefferies report.
ESG Theme is growing rapidly in India and globally, which is likely to benefit Thermax. The report said, “Contrary to perception, Thermax is a beneficiary of corporate India’s growing focus on ESG. W2h recovery, biomass plants, solar opex, absorption chillers, water and waste treatment chemicals account for over 60% of Thermax’s revenues. Is part of.”
On the other hand, the rise in commodity prices and the inability to carry them forward is one of the major risks for the company. “We reduce our FY22E-23E EPS to 5-6% to factor the recent commodity spike and expect margins to normalize in FY24E,” Jefferies said.
It is to be noted that for FY22, the company expects margins to be in the range of 7-7.5%. However, in the long run it will remain at 15-17 per cent.
In addition, investors also need to keep a close watch on the company’s market share and capital allocation strategies.
Meanwhile, in the past one year, the company’s shares have gained nearly 38%, outperforming the S&P BSE Capital Goods index to rise 21% in the same time period.
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