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Stock corner: Upgrade Thermax to ‘buy’; FV unchanged at Rs 1,150

TMX has recently inaugurated its manufacturing incubation centre, has added key business references in south-east Asia, and continues to launch new offerings while engaging with stakeholders through customer and vendor connect sessions.

Thermax has started benefiting from such orders, with the recent impetus from National Green Tribunal (refer) a shot in the arm for such polluting industries.
Thermax has started benefiting from such orders, with the recent impetus from National Green Tribunal (refer) a shot in the arm for such polluting industries.

Positives sufficient to counter weak core market. Recent sectoral developments and initiatives from TMX to improve its competitive positioning reiterates its ability to counter near-term weakness in core domestic ordering and risks to margin from growing competition. TMX has limited direct exposure to state-level spending and is our preferred pick in an environment of weak domestic government capex. We upgrade to ‘buy’ (from ADD) at a broadly unchanged Rs. 1,150 fair value, net of roll forward.

Beyond the steady growth in demand from consumption-oriented sectors and stagnant base business, we see additional growth supports from the FGD market (thermal and beyond) and chemicals business. We also note near-term supports from domestic refinery orders and select prospects overseas.

TMX has recently inaugurated its manufacturing incubation centre, has added key business references in south-east Asia, and continues to launch new offerings while engaging with stakeholders through customer and vendor connect sessions.

FGD: We surmise ~US$2.5 bn ordering potential per annum over the next three years based on our discussions with key customers, assessment of CEA data on tenders and proximity of yet-to-be-tendered non-compliant thermal power plants to polluting areas/urban clusters. This does not include the 20% of FGD prospects list that may be at risk of not getting ordered on account of their location. Conversely, we see support from FGD ordering from polluting industries beyond power.

Thermax has started benefiting from such orders, with the recent impetus from National Green Tribunal (refer) a shot in the arm for such polluting industries.

The recent edition of TMX’s house magazine highlights TMX’s intent to double market share from currently negligible 2% levels in another US$2.5 bn market for a few key chemicals. Escalation of the US-China trade war and closure of European capacities could help achieve such a feat. We factor in 20% EBIT contribution from chemicals by FY2022.

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