Thermax loses steam. Can the company make investors happy again?

Copyright © HT Digital Streams Limit all rights reserved. Companies a file photo of Anu Aga, former chairman and non -executive director, Thermax, and Meher Pudumjee, chairman of the company. Summary During the post-gaying bull run, while investors chased themes around sustainability, the engineering congestion’s stock grew across fivefold between 2021 and 2024. It hit a 52 -week high of £ 5,835 in July 2024. However, the stock has since dropped more than 40%. Why are investors worried? Mumbai: Arnavaz Anu Aga, the Ocogenarian matriarch of Thermax Ltd’s promoter family, never planned to run the engineering company, her father, while Bhathena began in 1966. Bhathena found a worthy successor in his son -in -law Rohinton Aga, who took over in the public market in 1995. Rohinton’s sudden downfall in 1996 forced Anu to keep the reins of the business. With no experience in the head of a large corporation, nor a profound understanding of engineering, Anu Aga’s serious efforts to steady the ship made little result in the face of the macro economic wind of the 1997 financial crisis in 1997. This is when an anonymous shareholders’ letter showed up, which has since become part of the Indian corporate folklore. The shareholder allegedly told Aga that she had abandoned the shareholders. “To let us down is a dirty word. I couldn’t sleep, ‘Aga said at a meeting in December last year at Thermax’s Pune Head Office. She hired the Boston Consulting Group to write a turnaround. What followed is a well -documented re -inventive story, which is still referred to in business conferences and presented in management schools. Cut to 2025. It’s time to make Sulking shareholders happy again. During the post-gaying bull run, as investors chased themes around sustainability, the share of the conglomerate grew across five times between 2021 and 2024. It hit a £ 5,835 high in July 2024. However, the share has since fallen by more than 40% and closed at £ 3416 on April 28, while the growth was creeping up, while the losses in its new vines have fallen. Brokers generally cut the price goals. During this period, Thermax’s shares also have underperformed market index Nifty 500. At IIFL Institutional Shares, a Broker. -Transitional and reducing emissions. Thermax clocked the sales revenue of £ 1.626 crore in FY06 with a profit of £ 103. Revenue more than tripled by FY11 to £ 5.213 crore. There was a similar growth in profit over these five years to £ 377. But a decade later in FY20? Revenue was £ 5.731 crore. The profit dropped to £ 212 crore. With stagnant income and falling profit, Thermax had to find out again, or dare aging. Then Ms. Unnikrishnan, the long -term CEO (CEO) and managing director (MD) of Thermax in June 2020, after 38 years at the company, retired, the company chose an outsider. Ashish Bhandari, the established CEO and managing director, was a career of the general electrical employee when he was employed in 2020. Bhandari cut out his task. ‘Thermax has not grown. Things we brought here won’t get us ahead, ‘he said. “Meanwhile, a number of new opportunities come up, which, if we were able to capture, would create a future that was very exciting.” At a board of directors in November 2021, the company took out a road map for the next decade. Thermax will bet on its domain expertise in the energy space and help customers with energy transitions. It set a target to triple its revenue to £ 18,500 by 2030, with more than half of them coming from new businesses during the decade. The company ended up deeper in the solution business – with steam, water or clean power than a service per unit. It is surely that more than 15 years ago it had the idea to sell Steam as a service, but it has only now begun to scale the business. Thermax works almost 50 plants on this ‘build-own’ model. Other opportunities on the business radar include green hydrogen, advanced biofuels, supercritic boilers and carbon uptake technologies. However, the use of new opportunities meant that the risk runs and doing things differently than the business was used to, Bhandari said. For example, the constructive model model meant that it had been in debt for the first time in years. Look at the full image a file photo of Ashish Bhandari, CEO and Managing Director, Thermax. ‘I am more conservative and not a big risk sacker. I want our balance sheet not to be used. If Ashish (Bhandari) says tomorrow that there is a great opportunity, but we must use it to utilize our balance sheet, which would make me stay at night, ‘said Meher Pudumjee, the non-executive chairman of Thermax and daughter of Aga. On typical Thermax way, the company insisted on keeping the debt limited to vehicles with special purposes (SPVs) to own these assets, without any corporate guarantees of the parent company. “We expect these businesses to have their own financial models that are stable. We do not want to subsidize the risk of an asset by Thermax. Every asset, every SPV, must be able to raise money, make his own case,” Bhandari said. Like Meher Pudumjee, her husband, Pheroz Pudumjee, also has a non-executive board position. Their children joined Thermax and learned the ropes. Son Zahaan is executive assistant of the CEO, while daughter Lea is a product manager. Take a look at the full image (from left) Zahaan Pudumjee, Meher Pudumjee, Pheroz Pudumjee, Anu Aga and Lea Pudumjee. No Giga-scale promise, but the conservative approach of Thermax-the dislike of debt, judicious pace of expansion, picky about its clients and only enterprises with a clear path to profitability-it is a disadvantage in a market that appreciates the snazzy headlines and the promise of the Giga scale. Example: First Energy PVT Ltd (FEPL), which is part of Thermax’s Green Solutions portfolio. It delivers renewable electricity to industrial customers according to their own model. The customer pays a flat rate for the green power. Since its inception in 2021, the company has scaled to about 300 megawatts of renewable energy capacity. The project runs behind the schedule and is bleeding capital while Thermax runs at a judicious pace. Meanwhile, O2 Power, a renewable power platform erected in 2020 by private equity investors EQT and themesk, managed to scale up to 1.3 gigawatts operating assets when it was obtained by a subsidiary of JSW Energy at a £ 12.468 crore business. Other business-capital-backed renewable energy platforms have also scaled at a comparable rate, with investors making profitable exits in recent months. For Thermax, it was more difficult than the acquisition of land than expected. The returns of the business were also not what the company expected. “In FEPL we had quite a few losses this year. We expect the losses to fall significantly next year, although even next year would be loss … with breaking the year after,” Bhandari said during an analyst call on February 7. Thermax has so far invested around £ 20 crore in equity and about £ 300 in fepl so far, he said. The target is to invest another £ 500 crore to scale the business to 1 Gigawatt capacity. First Energy PVT Ltd, which is part of Thermax’s Green Solutions portfolio, delivers renewable electricity to industrial customers according to their own model. It runs behind the schedule and blooms capital. Similarly, Thermax BioOogy Solutions Pvt Ltd, part of Thermax’s industrial infra portfolio, was capital. It makes bio -together natural gas (CNG) plants that use agricultural waste as a nutrient and provides a commercially viable alternative to crop burning. Thermax has invested more than £ 100 crore in the business over the past one year as it struggles to translate its laboratory successes to industrial scale plants. However, this has discussed this investment as an income cost rather than a research and development spending that can be capitalized on the balance sheet and amorized over a longer period. This means a hit on the financial statements of the business in the short term and unfortunate investors. Growth spans, apart from green solutions and industrial infra, work Thermax in two other segments – industrial products and chemicals. However, industrial products and industrial information make up about 85% of the company’s revenue and a similar part of its profits. The segment for industrial products, which include the sale of boilers, heaters, waste heat recovery, air and water purification systems, has been strongly. The turnover grew by 9% year-on-year for the first nine months from FY25 to £ 3.099 crore, with £ 323 in profit before interest and tax (PBIT). PBit margin expanded 1.4 percentage points to 10.4%. The industrial infra segment, which houses various engineering, procurement and construction businesses, is where the company faces a challenge. Revenue grew 6% during the first nine months to £ 3.299 crore. But new orders have dried up, while the cost -transition in existing projects has resulted in PBIT margins in the first nine months to a huge 2.2%. The influx of the segment halved during the October-December quarter compared to the previous year to £ 669, which dragged the company’s consolidated order discussion during the quarter by almost a tenth, despite a healthy growth in the industrial products segment. “It was a difficult quarter, and the results were below our expectations,” Bhandari said on February 7. “That said, I expect a strong term 4, possibly even a very strong term 4,” he stressed. But while Thermax is tackling debt to finance the steam projects that are at work, it also changes the nature of his balance sheet, which has historically flushed with cash, says Amit Anwani, vice president and chief analyst for capital goods, industries and defense at Prabhudas Lilladher Pvt Ltd, a broker. “The Steam Supply business, where Thermax does the capital investment, exposes the balance sheet of the business to the business cycles of its clients. It also invests in assets for solar generation. Historically, these businesses take a lot of time to set up and give returns,” he said. What does not help the Thermax case is that the Ebitda margins remained between 7.5-8.5%, Anwani said, adding that the market priced in higher margins. Meanwhile, there was a challenge for execution and order. De Company’s book-to-account ratio-a measure of his order book versus the income of the twelve-month-is-on a huge 1.1, indicating a lower growth, he said. “All this is reflected in the correction of stock prices.” Time to carry out Iifl’s Pugalia is not convinced of Thermax’s efforts to find himself out again. Her premise: Thermax is not really about ‘projects’; It is a ‘products’ business. “They (Thermax) do not have the DNA to carry out projects. Somewhere or the other one wrong with execution, cost estimate, etc.,” she said. In other words, solutions like Steam as a service, where the company first utilizes its balance sheet to build the solution and then sell it as a service, is not really the leading. In the late 2000s, Thermax struggled to carry out boiler projects, Pugalia said. After that, the company faced challenges to carry out major power projects, smoking gasphurization projects and now the bio-CNG plants and refinery projects. “Every business has an inherent strength. Thermax’s power lies in products. In a sense, it’s the test of how they develop,” she said. Kavil Ramachandran, professor of family business and entrepreneurship at the Indian School of Business, recently conducted a case study on Thermax co-author of an author of a case study. He said although the financial statements of the company will take short-term hits if it goes over, its performance should be marked over longer horizons. Look at the full image of a file photo of Kavil Ramachandran, Professor, the Indian School of Business. “The long -term investments will only pay if the performance is not measured quarter to quarter or at share price. The problem with many companies is that a CEO is assessed by profits or share price,” he said. In addition, Thermax is in the renewable energy sector sector, where changes are not as fast, compared to a sector like electronics, Ramachandran added. This allows the company to be the freedom to be conservative with its investments. “Not to run, not to know how to run, are two different things,” he said further. Thermax knows to run, but investors want the company to win the race. Catch all the corporate news and updates on live currency. Download the Mint News app to get daily market updates and live business news. More Topics #Long Story #Long Read Mint Specials