Thermax Stock Surges 5% on Kotak's 28% Upside Target

Introduction

Shares of Thermax Ltd. climbed over 5% on Friday following a significant ratings upgrade from Kotak Institutional Equities. The brokerage firm raised its recommendation on the stock to 'Buy' from 'Add' and established a new price target of ₹3,575 per share. This revised target implies a potential upside of approximately 28% from the stock's previous closing price, signaling strong confidence in the company's growth trajectory.

The Rationale Behind the Upgrade

Kotak Institutional Equities based its optimistic outlook on several key factors. The primary driver is the stock's current valuation, which the firm deems attractive after a recent market correction. Thermax has seen its share price decline by 27% year-to-date in 2025, creating what Kotak describes as a compelling entry point for investors. The brokerage highlighted that Thermax is well-positioned to benefit from scaling up its existing operations, expanding its geographical footprint, and successfully integrating new business lines into its portfolio.

Financial Projections and Margin Improvement

A crucial part of Kotak's analysis is the expectation of significant margin improvement in the coming fiscal years. The firm projects that margin normalization will largely occur between FY25 and FY28. This recovery is anticipated to be driven by a reduction in the proportion of troubled project orders, a rebound in the underperforming chemical business, and a more favorable business mix within the products segment. Kotak forecasts a pro forma earnings per share (EPS) of ₹72 for FY25, adjusted for potential losses in specific project portfolios. The stock is currently trading below 40 times these pro forma trailing earnings.

Strong Order Book Enhances Revenue Visibility

Thermax's robust order inflow provides a solid foundation for future growth. Kotak noted that the company's order book is not heavily dependent on large, infrequent orders, making its revenue stream more consistent. A significant order win in the third quarter reportedly increased the year-end order backlog by 15% year-on-year, substantially improving revenue visibility. Building on this momentum, Kotak projects a healthy compound annual growth rate (CAGR) of 12% in revenues for the period from FY25 to FY28.

| Brokerage Upgrade Summary | | :--- | :--- | | Brokerage Firm | Kotak Institutional Equities | | Previous Rating | Add | | New Rating | Buy | | Price Target | ₹3,575 | | Potential Upside | ~28% | | Current Price (at time of report) | ₹2,877 |

Management's Perspective and Strategic Focus

Thermax's leadership, under MD & CEO Ashish Bhandari, has outlined a clear strategic direction focused on energy transition, sustainability, and digital transformation. Bhandari has expressed optimism about the company's future, citing a strong project pipeline and steady demand from key sectors like power, chemicals, and cement. While acknowledging some near-term softness due to delayed product offtake, the overall outlook remains positive, supported by opportunities in international markets, including the Middle East, Southeast Asia, and Africa. The recent re-appointment of Bhandari for another five-year term underscores the board's confidence in his leadership and strategic vision.

Market Reaction and Stock Performance

The market responded positively to the upgrade, with Thermax's stock price rising to ₹2,877 in early trading. Despite this single-day gain, the stock's performance over the past year has been mixed. The significant year-to-date correction is a key element in Kotak's valuation argument. The upgrade is expected to boost investor confidence not only in Thermax but also in the broader industrial capital goods sector in India.

| Historical Stock Returns for Thermax | | :--- | :--- | | 1 Day | +0.55% | | 1 Month | +8.50% | | 6 Months | -10.72% | | 1 Year | -25.66% | | 5 Years | +222.82% |

Analysis and Forward Outlook

The upgrade from Kotak Institutional Equities serves as a strong validation of Thermax's underlying business fundamentals and long-term strategy. The brokerage's analysis points to a company at an inflection point, where improved project execution, a strong order backlog, and strategic expansion are set to drive both revenue growth and margin recovery. While challenges in executing large-scale projects remain, as acknowledged by the CEO, the stable commodity price environment and robust demand pipeline provide a favorable backdrop. Investors will be watching closely to see if the company can translate its strong order book into sustained profitability and achieve the growth projected by analysts.

Conclusion

In summary, Kotak's upgrade of Thermax to a 'Buy' rating with a 28% upside potential has put the spotlight on the company's turnaround potential. The decision is backed by an attractive valuation, strong revenue visibility from a healthy order book, and a clear path toward margin improvement. As Thermax continues to focus on its strategic priorities under a stable leadership, it remains a key player to watch within India's capital goods sector.