Indian engineering and environment solutions major Thermax Ltd has deliberately taken a significant financial hit in the September quarter, characterizing Q2FY26 as a "kitchen-sink quarter" to clear lingering challenges from older projects and position the company for stronger future performance.
Quarterly Performance: Significant Decline Across Key Metrics
The company witnessed substantial pressure during the second quarter of fiscal year 2026, with revenue declining 5% year-on-year to ₹2,474 crore. The more concerning figure came in the form of EBITDA, which plunged dramatically by 38% to ₹172 crore compared to the same period last year.
The primary drag on performance emerged from the Industrial Infra segment, which has been struggling with execution challenges and cost overruns for nearly two years. This segment declined by a substantial 24% year-on-year, with margins collapsing to just 1.6% versus 7.1% recorded a year earlier. The root cause traces back to older, low-margin government and refinery orders that have consistently undermined the company's financial performance.
Legacy Project Cleanup: Light at the End of the Tunnel
The silver lining in this challenging quarter comes from the nearing completion of these problematic legacy contracts. According to company disclosures, only ₹570 crore worth of these low-margin orders remain in the pipeline, with 62% scheduled for execution in the second half of FY26.
A particularly troublesome project—the NRL refinery order—is now substantially behind them, with just ₹180 crore remaining to be executed. Management has expressed firm commitment to avoiding similar contracts in the future, expecting to enter FY27 with a significantly cleaner project book compared to the current fiscal year.
The strategic decision to designate Q2FY26 as a "kitchen-sink quarter" reflects management's conscious choice to absorb remaining costs from older projects, effectively clearing the slate for future quarters. This approach involves frontloading expenses, write-offs, or losses into a single period to reset profitability metrics.
Core Business Segments Show Resilience and Growth Potential
As the noise from legacy projects diminishes, Thermax's core business segments are positioned to demonstrate improved performance. The Industrial Products division is experiencing strong demand in water treatment, clean air systems, and data centre cooling applications.
The TBWES segment, specializing in boilers and heat recovery steam systems, appears to be entering a multi-year upcycle, supported by robust domestic order flows and improving visibility in Middle Eastern markets. Meanwhile, the Green Solutions business continues to build momentum, with hybrid renewable projects, biomass boilers, and CBG plants contributing more substantially each quarter.
Even the Chemicals business, which faced pressures from global resin market conditions, anticipates utilization rates and margins to improve beginning in the third quarter of FY26.
Strong Order Flow Despite Quarterly Challenges
Despite the messy quarterly performance, Thermax demonstrated resilience in order inflows, which increased 6% year-on-year to ₹3,551 crore. The company's total order book has now crossed the ₹12,000 crore mark, indicating healthy business pipeline.
The quality mix of orders has also shown improvement, with Thermax successfully winning higher-quality industrial orders while consciously avoiding long-dated PSU projects that fail to adequately compensate for associated risks.
Company management expects full-year order inflows to rise more than 20%, driven by strong demand from power, metals, refining, and petrochemical sectors. Large data centre opportunities are beginning to contribute meaningfully and could represent recurring growth pockets through FY27–FY28.
Order inflow growth in FY26 is anticipated at approximately 20% year-on-year, with a sharp pickup of up to 30% expected in the second half of FY26.
Market Performance and Analyst Outlook
The market has responded negatively to the ongoing challenges, with the stock declining 24% in CY25 so far. Currently, Thermax trades at around 37 times FY27 price-to-earnings ratio, according to Bloomberg data.
Analysts from Nuvama Research identify several key triggers for potential recovery, including timely project execution, especially for Industrial Infra segment, securing large-ticket size orders, and margin recovery from current around 8–9% levels. The report also highlights proper capital allocation, reduced losses from FEPL, and selective margin-accretive order picking as other critical variables for future performance.
With most problem contracts nearing completion and core business segments showing strength, Thermax appears positioned to begin FY27 on a substantially cleaner slate, potentially marking the beginning of a sustained turnaround story for the engineering solutions provider.
