Shares of Thermax, a leading energy and environment solutions provider, have been on an upward trend over the last seven months, producing a stellar performance and significantly enhancing shareholder wealth in a relatively brief timeframe.
During this period, the company's shares have grown from ₹2,533 apiece to the current market price of ₹5,061, resulting in a gain of 100%. Notably, the company finished 6 out of 7 months in positive territory, with December witnessing the largest monthly gain with a return of 22%.
Zooming out, the company's shares have delivered a massive return of 617% from their October 2020 low of ₹705.90 apiece. After experiencing a significant rally without any substantial pullback, analysts remain cautious about the stock's short-term outlook but maintain a favorable view on the company's long-term growth prospects.
In its latest note, domestic brokerage firm Sharekhan expects the company to benefit from India’s transition to green energy, citing its diverse offerings in the space and ongoing investments. Future prospects in biomass, waste heat recovery (WHR), and water desalination also remain strong.
However, the brokerage notes that the company's current outstanding order book of ₹10,111 crore (1.1x TTM revenue) is soft, due to the absence of large orders. Some sectors witnessed a slowdown in order book activity due to elections.
The brokerage notes that the stock is trading at premium multiples of 76x/63x its FY25/26 EPS. Therefore, it has retained its 'Hold' rating, believing that long-term growth prospects are already priced into the stock.
Regarding the stock's near-term price movements, Sonam Srivastava, Founder and Fund Manager at Wright Research, stated, "Predicting near-term price movements is challenging. While the stocks currently rank high in momentum and analyst ratings, unforeseen events can still cause significant fluctuations."
Thermax's long-term outlook appears promising. The company operates in the expanding energy and environmental solutions sector, which is poised for growth due to increasing government focus on infrastructure development and sustainability initiatives, she pointed out.
Additionally, she highlighted the company's focus on green hydrogen and chemicals, suggesting strategic positioning for future market demands. However, she said investors should give careful consideration to the company's financial performance, order book health, and management's ability to capitalise on these trends to translate long-term potential into concrete results.
Speaking on the outlook for the company, she noted that it may not align perfectly with the capital goods sector as a whole. While the sector's overall health will undoubtedly impact Thermax's performance, the company's specific product segments and target markets could lead to some divergence, she further added.
"Fundamentally, Thermax is one of the largest players in the engineering segment of capital goods but is slightly overpriced compared to its peers. The company's significant focus on green hydrogen and chemicals could provide it with an advantage over the sustainability trend," noted Sonam Srivastava.
Thermax provides solutions in the energy and environmental space. The energy business contributes 89% of the revenue, the environment business contributes 5%, and the chemical business contributes 5%.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
