Thermax Navigates Q2 FY26 with Strategic Shifts and Future Focus

Thermax Limited, a prominent player in energy and environment solutions, recently unveiled its Q2 FY26 earnings, presenting a detailed picture of its operational and financial performance. The quarter, while showing some headwinds in profitability, also highlighted the company's strategic pivot towards higher-margin projects and robust future growth initiatives. The management candidly addressed the challenges, terming it a "kitchen sink" quarter for certain segments, particularly Industrial Infra, as they work through legacy low-margin projects.

For Q2 FY26, Thermax reported an operating revenue of 2,474 crore. The total order booking for the quarter stood at 3,551 crore, marking a 6% year-on-year increase. However, Profit Before Tax (PBT) saw a decline of 35% to 174 crore, and Profit After Tax (PAT) decreased by 40% to 119 crore. This dip was primarily attributed to an unexpected engineering surprise on a large refinery project and the continued execution of low-profitability FGD (Flue Gas Desulphurisation) projects. The management emphasized that the bulk of these low-margin projects are nearing completion, with a significant portion expected to be delivered in the second half of the current fiscal year.

Here's a snapshot of Thermax's Q2 FY26 performance:

Segmental Performance and Strategic Realignment

The company's performance across its key segments revealed a strategic realignment. The Industrial Products segment demonstrated resilience, contributing 1,189 crore in sales. The Industrial Infra segment, with sales of 949 crore, faced profitability pressures due to lower margins in projects and cost overruns. The Chemicals segment, reporting sales of 191 crore, saw its profitability affected by intense international competition, particularly from Chinese players, and higher fixed costs. However, the Green Solutions segment, with sales of 192 crore, showed a positive trend with margin improvement driven by operational efficiency and an insurance claim.

Thermax is actively pruning its project pipeline, consciously declining low-margin government-related projects. The management revealed that projects worth approximately 5,000 crore were passed on in the first half of the year, reflecting a disciplined approach to order selection. This strategic shift aims to build a backlog of more profitable orders, ensuring sustainable growth and improved margins in the long run.

Future Outlook and Growth Initiatives

Looking ahead, Thermax's management expressed strong confidence in a significant catch-up on the revenue line in Q3 and Q4. The company anticipates an overall order book growth of over 20% for the current fiscal year, with both revenue and profitability expected to improve compared to the previous year. This optimism is fueled by a robust pipeline of profitable domestic and international projects, particularly in the TBWES (Thermax Babcock & Wilcox Energy Solutions) division.

Thermax is making strategic investments in high-growth areas. The company is actively powering 100MW+ data center growth with next-gen cooling solutions, addressing a rapidly expanding market. It has also played a pivotal role in India's first indigenous greenfield semiconductor assembly facility by commissioning a 194 m³/hr ultrapure water generation system. Furthermore, Thermax is venturing into the biofuels space with initial 1G ethanol orders and expanding its CBG (Compressed Biogas) operations, having commissioned and dispatched 22 TPD CBG plants. The new Jhagadia Resin Plant has also commenced manufacturing, bolstering the Chemicals segment's capabilities.

In a significant corporate development, Thermax Limited's Board approved a Scheme of Merger by Absorption of Buildtech Products India Private Limited, a wholly-owned subsidiary, into Thermax Limited, effective April 1, 2025. This merger aims to consolidate businesses, enhance synergies, improve asset utilization, and simplify the group structure, leading to cost savings and reduced compliance complexities. Additionally, the Board approved an additional equity investment of Rs. 40 crore in Fortmax Chemicals India Private Limited, a step-down subsidiary, and support of up to Rs. 42 crore (Equity/Loan) to Enernxt Private Limited, another wholly-owned step-down subsidiary, to meet capital and operational expenses.

Concluding Thoughts: Strategic Clarity and Resilient Execution

Thermax's Q2 FY26 performance, while marked by some short-term profitability challenges, underscores a clear strategic direction. The company is actively shedding lower-margin projects, focusing on disciplined order selection, and investing in high-growth, sustainable solutions. The management's transparency regarding past missteps and confidence in future execution, backed by a strong order pipeline and strategic initiatives in data centers, biofuels, and advanced manufacturing, positions Thermax for a resilient and profitable future. The ongoing consolidation and investments further strengthen its operational framework, reflecting a commitment to long-term value creation and market leadership in the energy and environment sectors.