PL Stock Report: Thermax (TMX IN) - Analyst Meet Update – Green solutions to drive next leg of growth - HOLD

Thermax (TMX IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt. Ltd.

Rating: HOLD | CMP: Rs2,822 | TP: Rs2,771

Analyst Meet Update – Green solutions to drive next leg of growth

At the recent Thermax Fest held on December 15th, 2023, TMX showcased its innovative solutions across coal gasification, bio-CNG & biomass fuels, green hydrogen, renewable hybrid energy, construction chemicals, water, cooling & heating technologies, Thermal HVAC and industrial asset management. Although international manufacturing has not worked out as planned, there are some opportunities in Africa, Middle East and South East Asia. India, however, remains the fastest growing market for Thermax’s offerings and the company is looking to capitalize on opportunities arising out of government policies on carbon footprint reduction, green energy, wastewater treatment, etc. Meanwhile, the chemicals business is unrelated to the energy transition theme, yet is expected to grow strongly over the next 4-5 years.

We believe TMX is well placed to gain from increasing thrust on energy transition & de-carbonization initiatives led by its 1) sustainable green industrial solutions in bio-energy, heating & cooling, chemicals, and water, 2) technical expertise, 3) strong balance sheet and 4) prudent working capital management. The stock is currently trading at a PE of 46.4x/41.5x FY25/26E. We maintain our ‘Hold’ rating with a TP of Rs2,771 (same as earlier), valuing it at a PE of 43x Sep’25E (same as earlier). We are positive on the long-term prospects of TMX, while maintaining a neutral view for the near-term given steep valuations.

Key takeaways from Thermax Fest

Thermax to capitalize on government’s coal gasification policy

♦ The government’s National Coal Gasification Mission has set a target to gasify 100MT of coal by 2030 with an expected investment outlay of ~Rs200bn.

♦ Various government incentives are expected including revenue concessions, GST exemptions, economical financing options, R&D funding, and Viability Gap Funding (VGF) for demo and commercial plants.

♦ To capture this growing opportunity, Thermax has launched a pilot gasifier project in Pune in collaboration with IIT Delhi. It is based on Fluidised Bed Coal Gasification Technology, which converts high ash Indian coal into value-added fuels.

♦ Overall, the company aims to develop gasification plants with carbon capture capabilities to process coal ranging from 100 to 500 tons per day.

♦ Coal gasification will help reduce dependence on coking coal imports for the steel industry, thereby cutting forex outflow and steel-making costs. Gasification based-steel making also has higher energy efficiency (55-60%) as compared to 35-45% efficiency of using coal for power generation.

♦ Gasification also finds application in blue chemicals and cleaner process heating.

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