Ladies and gentlemen, good day and welcome to Thermax Limited Q2 FY 2027 earnings call, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from DAM Capital. Thank you, and over to you, Mr. Kunal.
Yeah, good afternoon. Welcome to the Q2 FY 2027 earnings call of Thermax Limited. We have the management today, Mr. Ashish Bhandari, MD and CEO, and Mr. Arunachalam, Group CFO and Executive Vice President. At this point, I will hand over the floor to the management for their opening remarks, post which we can take up the Q&A. Thank you, and over to you, sir.
Hi, thank you very much, and a very warm welcome to everyone that is attending today. And a very happy Dhanteras and a very happy Diwali as well. On the numbers, I will be extremely brief. We can just pick it up in questions. I imagine there will be a lot of questions based on what we have put out. The numbers relative to—f rom a numbers point of view, nothing special, clearly. I would love to share some of what is happening behind, which, as I have been saying, continues to give me huge optimism and positivity for not just for the backlog, but also for the potential that we have in multiple businesses. And through the questions, I will cover each sector that we have, because there is lots to talk about in every sector. Instead of me going on a monologue, let me go through all the questions.
Like last time, I commit to staying on much more than just the hour and odd that we have together. We can go on until 12:30 P.M., so that through your questions, I make sure that everything that I need to speak about is shared. Thank you. We can go straight into questions.
Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while asking the question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Atul Tiwari from JP Morgan. Please go ahead.
Yes, sir. Thanks a lot. Sir, my question is on order bookings, order inflows in this quarter. They are down 8% year-on-year. Even in the first quarter, we were kind of flat year-on-year.
How does the outlook for order inflows look over next three, four quarters? Can we hope to achieve, say, mid-teens kind of growth in order inflows given the pipeline on a sustainable basis from here on, or more like a single-digit growth is more likely?
Hmm. On orders, first I would say this quarter wasn't that bad, and I will share why that is the case. You will see, last year we had the big utility boilers, which were quite substantial from an international orders. This also we had something that was large, but not particularly as dramatic as what it was last year. Despite some of this environment stuff, the orders that we picked up shows the overall health that we have across the board. You will see the pickup starting to show more prominently in Q3 and Q4 as well. The question then is it single- digit or is it double- digit? I think both of those scenarios are possible.
I will wait because the environment that we have has just got so much going on that committing to an absolute number right now, it is between those two numbers is where I would be. Where we would land up will depend on customers agreeing to absorbing some of the pricing, which is very real in the market. I guess that is the biggest driver more than anything. There is one small part on how the U.S. data center market also moves. There are some moving parts. We will grow compared to last year. That much I am confident. Last year, as we know, was a big jump. Crossing that INR 14,000 crore threshold was a big one for us from a backlog perspective. Then continuing to grow on that number, I think is something that we are confident of.
Whether it is double- digit or not, I cannot say because for double- digits, you need some big projects to come in, like really big projects. That I will want to see it actually done and then come and announce and share. The possibility exists, definitely.
And sir, my second question is obviously on margin. I mean, margins have been under pressure. The reasons are well understood. Whatever cost overruns, impairment, et cetera., that we needed to take, are all of them have been taken and done with, or is it some more pending? The second part is obviously, can we hope for, say, high- single-digit kind of margin to sustain at least?
The last part of the answer is absolutely yes. Not only that, I do think at least for a couple of quarters, we should be doing even better than that. I will take this point to share what are the three areas, which is the areas that we are working through. In no particular order, but we had these large orders, which I have talked about, which are primarily these FGD and government orders with long duration. Some of these are projects that are, I mean, the project that we are closing right now is its eighth year. The order itself was taken in 2019, and it is now getting cleared out of our system. Here, what is remaining is getting smaller and smaller.
Practically, as I have said before also, at the end of this year, the only project that will have some amount of significant work is the one project that we are executing in Assam. It is the same project that we took a hit against in Q1. That project now, as I said, the entire engineering is complete. Everything else is done for. Whatever is remaining is the construction portion. There is nothing in this quarter that has come that gives me any concern that the hit that we taken in Q1 was not sufficient or anything of that sort. We expect a change order from a customer also, which we will not recognize as margin. We will keep that as part of execution for the remainder of that project.
That then means that we had HRRL, which was also a INR 500 crore order that we had picked up in Q2, which is now completely over. In Q1, all of HRRL got over. Now what we have is change orders, which we expect to come back from the customer, because we have very strong reason that we have change orders and certain claims from the customer that we need to show up. Whatever will show up will be on the positive side. On the FGD projects, there is one project which actually got finished last quarter, and we took. Between Q2, Q3, Q4, practically everything on FGD will this year also be over. There will be some revenue recognition at the beginning of next year, but all mechanical completion, everything will be finished this year.
That is on the large project side, which is just stuff that we are flushing out of the system. In the last three years, there is nothing that we have taken that concerns me. The execution on the supercritical one also so far continues to be good. Our margin holding on the international project, despite some of the price moves and the commodity price increases, we have continued to hold internally. I do not see concern. Last quarter, we had shared a table on our projects look also. That similar look would hold. The second area has been FEPL, which is our renewables business. This is a business in which we have taken consistent losses, which have been relatively high.
Even in Q2, we took a loss against. Basically, we have a project in Tamil Nadu, which is significantly high CapEx, and the entire project is up, which means the machines are up, the stringing is up, transmission is up. It is just waiting. I was waiting on government approvals, which during the government change, they just came and stopped approvals of the previous government or whatever may be the case. Some of those delays, which were very difficult to fathom before. As you know, we are looking at a. We have committed to bringing a growth partner for this part of our business. The third business that remains is TBSPL, which is where, as we have said, we are finishing multiple PGTRs. We had five PGTRs where we had concern, of which three are already out.
There are two that relate to Raichur, which are two of the tougher ones, which will go into PGTR. They have been delayed because of monsoons. Our customer couldn't bring the feed that was needed to execute these projects. They will imminently go into PGTR. So I'm sharing very openly which are the areas that I have, where we have potential looks, and I'm sharing quite openly what is the future of each one of these portions that we are working through.
Okay, sir. Thank you. Thanks a lot. And best of luck in the future.
Thank you. Next question is from the line of Shirom Kapur from Jefferies. Please go ahead.
Hi, sir. Thanks for the opportunity. Just a question on your order booking. You mentioned that in your presentation also that some large orders have been deferred. Now, on your interview this morning, you mentioned a INR 100 crore export order that has impacted your order flow. But even if we see the domestic order flow, it seems to be a little down YoY. So, could you comment a little bit on the industrial products order flow, how you're seeing it move ahead? Are there any big orders in the pipeline?
Sure. Let me take and divide this up. In the interview in the morning, I was talking about the revenue side. I wasn't talking about the order side, and the person was mentioning orders, but was mentioning margins. I tried to clarify it. I don't think I did a good job of explaining that it wasn't an orders push, and a INR 100 crore orders push here or there is not something that I would talk about. It was the revenue side that I was speaking to. On orders, on industrial products, which is where you would see that after quite some time, there was a small pause in reduction of orders. It was completely temporary. In October itself, that has reversed out, and you would see industrial products in domestic showing a good jump in Q3 itself.
Good chunk of it is even in October itself, we have had some of those that shipped from September to October. Almost everything has come in. That INR 300 crore gap in orders that you see in industrial products in Q2, you will see that being made up in Q3 itself. I don't see a concern on domestic demand. In our water business, we have increased our prices in water and in chemicals quite substantially on both, because these are the two businesses where the impact of commodity costs is the highest. So, there is some impact on customers little bit delaying decisions or not doing their refills on the services side as fast as they would, which is also just timing impact. Sooner or later, these are all businesses that customers have to make a decision on.
All right, sir. Thank you for that clarification. Just carrying on from this point on commodity costs. How do you see the outlook? Could you give some more color on the commodity cost impact on your industrial products business, especially where we've seen margins come off? Could you give some more color on how you see this playing out ahead? The reason for the decline has been customers not accepting the price hikes, or has the inflation been higher than you expected? Where you're seeing the highest impact and what kind of commodities? Just if you could give some more color on this overall commodity cost side.
Let me take the second one first, and then I'll take industrial products in the margins portion specifically. Commodity costs went up in February, right when the war happened. Just as the war happened, practically every commodity shot up. That is, firstly for us, steel has a major impact, both in terms of plates and pipes and even seamless tubes. All of them went up, depending on the commodity that you look at, 10%-15%. Then copper and aluminum. Aluminum has now softened a little bit. Copper doesn't affect us directly, but we buy a lot of electrical equipment. So, motors and generators and all of that that you buy as part of our solution set, those are bought out for us. There, the prices went up quite substantially. Lastly is crude and derivatives of crudes.
Crude derivatives would be PVC, plastics, and in our chemicals business, styrene. Styrene is a derivative of crude, but it is also impacted not just by crude, but by availability itself, because styrene comes from plants in the Middle East and plants in China. The Middle East supply has dried up, and in cases, plants have shut down, or at least are working at lot lower capacity utilization. Not only are they impacted by crude prices, they are also impacted by what happens to supply itself. Then, in terms of our business on industrial products, the impact to this industrial products was because of commodity prices, but a bigger impact was because we had stuff that was manufactured where we could not ship things.
For any plant, and especially plants where you have base cost of the plant itself, if you miss a revenue number because the stuff sits in inventory, the margin impact is not just a direct margin, as you can imagine. You also get a double impact on effectively the base cost of the factories not getting covered, and you get a third impact that many of your international orders are relatively more profitable. You can imagine with the rupee depreciating, even when you hedge, those orders only get slightly more profitable between when you gave the quote and when the time the customer gives the orders, and because they are all dollar denominated.
But all three of these, the second portion, which is the inventory sitting on the books and the margin out there, the impact on the base cost and the profitability, the additional profitability because these are international orders. All three of these are timing impacts here. Whatever is sitting in Q3 with Q2, which is a substantial impact, which will start to show up in. Actually, I will add a fourth one also out here, which is inventory, which is in water. Our data center project for the U.S. is an example, our chemicals business to the U.S., which are not affected as much by the war like it is in the Middle East, but they are affected by the time the ships take to get to the U.S.
Until we deliver it to the customer in the U.S., we cannot recognize revenue because we sell to our local entity in the U.S. All four of these parts are timing impacts. They will, Q2, a good chunk will show up in Q3, and as things normalize between Q3 and Q4 , and that is assuming things normalize, of course. The part which is the commodity cost increase, which for industrial products was of the order of about between INR 10 crore and INR 15 crore for the quarter. That also will reduce in amount. Q2 was the worst. That also will reduce in amount, but that impact we will carry into Q3 and a little bit in Q4. The absolute amount will go down with each quarter, assuming things do not get any worse from what it already has been.
And so far, the signs are that things will normalize going forward. I think I have answered your question in fair amount of detail with specific numbers and specific insights as well. Yeah?
Yes, sir. Absolutely. Thank you so much for the detailed response.
Thank you. Next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.
Hi, Ashish. Congratulations on a decent performance in a challenging quarter. My first question is on the U.S. market, if you can help us understand how is the data center pipeline building out there? Because in the past, we have been speaking about it, but of late, we have not seen any new orders coming in. So, both on the cooling side as well as on the [HVAC], if you can help us understand how is the opportunity stack building up?
In data centers, both U.S. and India, our cooling set of products continue to establish themselves. in Q2, we had an order in India, and Q3 also, we will have another reasonable size order for cooling in India. The good part at least is the product portfolio is starting to get established. For the U.S., I have been disappointed with both on the order side and on the revenue side. I will take both parts one by one. The disappointment is not on that the product doesn't have a fit or I don't see an opportunity pipeline. In fact, the opportunity pipeline with each quarter continues to be more and more real. The projects and the size continue, and where we are involved, continue to get bigger and more exciting. Where I have been disappointed with is on the timing of these things.
In every project, we see stuff moving to the right, completely driven by U.S.-specific issues, which is data center projects, where some portion of the puzzle, and this is particularly driven by local environmental clearances and local approvals from authorities coming and delaying. Stuff just keeps moving to the right, which is, of course, disappointing. The stuff that is out there is getting bigger and bigger, though. I am still very hopeful, but certainly relative to when we had spoken last, I would say there would be at least a one to three month delay on almost every project that we were associated and working with.
That delay has actually shown up even in the revenue cycle, where, like in Q2, we had expected that the first our data center project, which was for the U.S., would all get shipped out in Q2, and that has moved from Q2 to Q3, and a small portion and a medium portion in Q4, completely driven by how the project at the customer's end has been delayed. We really wanted it to be up and running sooner so that we could showcase some of our capability as well. That said, we are getting deeper into the customers, into the design specifications of more and more projects in the U.S. As those projects finish their funding and as they go through their ordering cycle, where Thermax stands, that portion I am more and more excited about.
The India portion is, while the pie is relatively smaller, a typical order is only between INR 40 crore and INR 100 crore. That portion continues to have movement. In Q2, we got an order in India. Q3 also, we have already closed one more order, and we see continued activity on the India front.
On the U.S., typically, what will be the order size? Like in India, you said it is about INR 40 crore-INR 100 crore. This is only for the, I understand in India, this is only for cooling products, but in U.S., if you can help us understand what could the opportunity be in terms of order size, both for the cooling as well as the boiler opportunity?
The boiler portion is depending, they would all be in hundreds of crores.
In U.S., you are saying?
In the U.S.
And cooling?
No, I am talking cooling. Boilers as well and cooling as well. The boilers would be fewer, but size-wise larger. Cooling would be more in number, but also in hundreds of crores.
Okay. And what could any specific idea on what could be the opportunity or the bid pipeline in U.S. which currently you are chasing? What kind of bids where you are putting—
For numbers, [Ashraf], numbers are large, and given what we have done, I would say the first order that we got was slightly north of [$20 million], and that to us was a medium-sized product project. Small to medium. It was not one of the medium to large-sized data centers, in which case you are talking about multiple times potentially also the kind of what we did on the first one. But because I think that all I can say is the numbers are large, but anything I say will only raise expectations beyond. We just need to deliver on those expectations. You will be happy with the size whenever that comes through.
Q4—
It is not like there is one. There is not one, there are multiple. It is from a timing perspective, I guess, which is you are already talking about Q4. I previously said I would be disappointed if we do not do one. My expectation was two within the year. I think I would say where I am standing now, close one within the year seems more likely. Could be more, but I think relative to when we spoke last, slightly more pessimistic on the timing perspective, more optimistic on the size of the overall opportunity.
PUE-wise, we have delivered. I mean, we are quite confident that on reduction of PUE—
More than confident, and more than now getting into the design specification for some of the biggest names in the industry.
Ashish, thank you. I wish you the best. Look forward to hearing some good news here.
Thanks.
Thank you. Next question is from the line of Hardik Chheda from Lark. Please go ahead.
Yeah. Sir, I just wondered if you could quantify the margin picture in numbers. You explained it in detail regarding Q3, Q4. Could you just put a number as to in the H2, what kind of margin can we expect?
Significantly better than the first half, which is not saying much given what we have shown in the first half. Our potential scenario for the second half, a lot will depend on how much of the revenue which we think we can do, we are able to deliver. Let me put my neck out here. The number on the revenue side, we expect in the second half to be INR 7,000+ crore . Yeah, between Q3 and Q4, which is not much. Yeah, this is our scenario given the geopolitics and how Q1 and Q2 was particularly low. So it is just assuming a teens growth compared to where we were last year. Can we do even more than that? I think we can, but this is, in our view, based on kind of a scenario where the war continues for another couple of months, et cetera.
This is what we think is reasonable. If we deliver this revenue, the profitability impact is quite substantial. In product line over product line, we can pull up in industrial products as an example, where we have done barely 6% profitability for Q1 and Q2. You will see that number will jump to the other side of the mean very quickly. This is including the impact that we have had from the commodity cost prices and all of that. I am not sharing exact numbers, because not that we do not have all of those estimates, but I am giving you as much of the working numbers internally as I possibly can. I am saying I am extremely bullish on Q3 and Q4 without giving a specific number. On industrial projects, that is where you will see an even bigger jump.
On industrial projects, there is one part which is on how much we can recover in terms of change orders from our customers, which is then the icing on the cake. Right now, we are in a mode, especially as we finish off these big projects, where we have got substantial claims from our customers to come back, and which are all relatively straight to the bottom line. In all cases, the claims are genuine, and in most cases, there is reasonable confidence that we will get these because we have a very strong reason to get back. I cannot completely estimate what that number will look like, which is why I will hold off on giving a number on industrial projects, industrial infra specifically. Third, let me take chemicals, because we have not talked about chemicals.
Chemicals is going through possibly the most change in its environment, because this is where the impact of commodity prices has been massive, and a good chunk of what it does is export. So you are competing in this world against Chinese supply and global supply, whereas India is particularly affected in this environment. Q1 and Q2, we increased our prices massively. In chemicals, the overall impact of commodity prices was INR 20+ crores, between INR 20 crore and INR 25 crore in Q1 and Q2, of which majority of that was absorbed by price increase. The end impact in chemicals was just INR 2 crore in the first half. Crude has, a week ago, was [$116 +], and today it is [$90- odd]. I have not seen the number this morning. So you can see how badly and how much it is fluctuating.
We are in a place where we have increased our prices substantially. We have to be sure that it continues to hold, and we can continue to work that through. October has also been, touch wood, very good. We are able to hold on to our price increases in an environment where couple of our competitors, even couple of our domestic competitors, have perhaps not increased prices as much as we have. We have increased our prices, and we plan to continue to hold on to a higher price number and expect that, because these are all real costs, and that the supply chain, if the same supply chain applies to everyone, others will also have to increase prices sooner or later.
But so far, October has also held up very well, and I give a lot of credit to our team in this difficult environment to manage the chemicals business. So chemicals have less clarity into Q4. It could be a very good quarter also if prices come down and the war slows down. If there is continued volatility, there is some amount of uncertainty. Q3 looks like will be okay based on a very good October as well. That brings us to green solutions. In green solutions, we have three parts. One is FEPL, where we have taken losses between first quarter and second quarter. Every quarter, we have taken losses due to a little more than what we should have. We expect that, and when we started the year, we did not expect this to be the outlook.
So relative to that, our outlook in FEPL is worse, and that we expect to continue for Q3 and Q4 as well. Our current estimate is that we will take losses in FEPL in Q3 and Q4 as well. TOESL continues to look better and better, is performing extremely well, and has a very strong pipeline, and continues to hit all its numbers, continues to do better. Bio-CNG, which is the third business which provides revenue out here, we are finishing all the PGTRs. It is still losing money every quarter, small single- digit, but that number is going down with each quarter. So I think there, look, one part is finishing the PGTR.
If we finish the PGTR, I can come back and say all the stuff on Bio-CNG is completely done, and then you have a very good, hopefully, an orders profile that will come into this business as the Bio-CNG business turns with the government price increase, which is now happening. So that is my outlook for the rest of the year. Without giving you a very specific number, I will just say extremely bullish. And of course, I cannot, with how we have started the year, I cannot deliver on a percentage basis what we did last year, which I would say was also not that great. But we will cover up a fair amount of gap is what I would say.
Thank you, sir. Next question is from the line of Kartik Kohli from Kotak Institutional Equities. Please go ahead.
Hi, sir. Thanks for taking my question. While you obviously talked about how you see margin and execution in Q3 and Q4, I would want to understand the Q1 and Q2 better, because even in the last quarter's call, you had highlighted that there were about INR 300 crore of shipments that did not go out and hence weren't in your numbers. Just wanted to understand, like in direct quantum terms, what has happened in Q1, how much of it went through in Q2, and what was the benefit in Q2 itself, which is basically what is bringing down margins in the product segment. That would be my first question.
The amount that we had in Q1 was quite substantial on what moved to Q2. What has moved now from Q2 to Q3 is slightly smaller than the amount that we had in Q1, but a substantial amount again moved in from Q2 to Q3. This is just completely driven by, well, let me take a step back. In Q1, we also had a bigger impact on the supply chain overall, which means there was shortage of gas, there was shortage of vendors' ability and our supply chain to even make stuff. Which also created, made that number slightly higher. That is now working itself out of the backlog. In TBWES, as an example, our capacity utilization in Q1 had come down quite substantially because of lack of availability of gas and all that. In Q2, that has worked itself out.
There are no shortages of gas. There is relatively much lower shortages of manpower, or I would say zero shortages of manpower in the factories. That is also completely normalized. What we haven't been able to normalize is that carry forward of international projects, and especially of the more profitable international projects, which is something that has moved from Q1 to Q2 and is continuing to push from Q2 to Q3. There is an additional impact where two big orders that we had, both in like a supply of chemicals and then of our cooling equipment as well, where stuff is on the water, but it has, all of these places have got fair amount of margin which is sitting. I don't want to share specific numbers because then I'm talking about profitability of individual orders and all that.
But the number is, between all of these, is quite substantial. We're talking about north of INR 30 crore.
I know you do not want to share numbers. Just wanted to get a sense of the quantum, because you shared this in the last quarter's call, you said about INR 300 crore. Why this is relevant is because you are saying, generally everything is continuing, you expect that you can do INR 7,000 crore. Just wanted to get a sense of how much is essentially moving away from 1H to 2H. That is it—
From what moved from Q2 to what is moving is about slightly more than INR 200 crore would be how I would say. When we started the quarter, based on what we thought was realistically doable, based on customer needs, et cetera, was about INR 3,100 crore. We ultimately ended up only barely crossing INR 2,800 crore. That is the impact that we see. The second half was anyway much stronger based on backlog and deliverability as well. Then you had this miss. Overall, I mean, if we take a look at what is actually deliverable in the second half, that number is much higher than INR 7,000 crore. The number that I am sharing with you is what we think is practically doable with some of the supply chain challenges and everything else that we are looking at.
Got it, sir. Just one second question on this that I have. It is more into the PGTR value it is done and the CBG pipeline that is developing.
Sorry, you wanted to say anything on that?
Just wanted to get a sense of how many Bio-CNG orders are currently pending in the PGTR exercise, and what is the sort of pipeline you are seeing that is being developed on the CBG side of things after the GOBARdhan scheme? Is there a pickup that you are seeing on ground in terms of inquiries and bigger players or bigger capacities being thought through in the industry? That would be my second question.
There is a good pickup in inquiries. The inquiry pipeline that has gone up has been across the board. It is from many of the smaller players looking at 5 ton, 10-ton plants, and then some of the larger players. I would say these are not the largest business houses. They are big players, but not the biggest players, and who are looking at these 15 ton and 20-ton plants where we have quite a few discussions that are imminent. I would say Q3 itself, we do not expect any orders. We do expect ordering to show up in Q4.
Sir, on the number of orders in your backlog which are currently pending the performance guarantee?
We have about four, if I remember right. Four or five, if I remember right here. Of which, two which are the rice straw ones, 100% rice straw ones. Those, in our view, are the slightly tougher ones. Most others, we are more than confident of meeting the customer needs.
All right, sir. Thank you so much for taking my question.
Thank you. Next question is from Mahesh Patil from ICICI Securities. Please go ahead.
Yeah, hi. Thank you, sir. Sir, one clarification. You mentioned that the Q2 to Q3 revenue slippage was around INR 300 crore, right?
INR 200 crore-INR 300 crore, yeah.
INR 200 crore-INR 300 crore. Okay. Sir, on the order side, you have mentioned about two orders getting shifted to Q3, right? What would be that quantum approximately?
No, no. Orders, I didn't say anything particular. I said orders in industrial products where it showed as if we took about INR 300 crore of lesser orders relative to what we had last year. I think that much of a gap you will see us picking up very quickly in Q3. That's what I said.
Okay. Sir, I think in the presentation we had mentioned that there was a deferment of major orders to Q3, right? I'm just checking on that.
Sorry, deferment of major orders into Q3?
Yeah. In the presentation, you have mentioned order booking in industrial products segment has declined primarily due to deferment of major orders to Q3.
Yeah. Which I said, no? About INR 300 crore, which I said we will pick it up pretty quickly in Q3, which is what I said. It was just a shift between Q2 to Q3.
Okay. Got it. And sir, in the morning, I think you had mentioned about building inventory for exports, right? If you can share some light on that and how are we managing our supply chain with the volatility that you mentioned? And also, lastly—
Sorry, go ahead.
Yeah. Sir, lastly, on the two non-recurring items that we had, right? The impairment in one of the RE projects and the incentive for [inaudible]
I think there is a bit of background noise. I heard impairment in the RE business, and what was the second one?
The incentive. Incentive we have booked, right?
Okay. The incentive that we have, we have had the incentive for the last few years on a regular basis, yeah? If anything, this has been part of Thermax's numbers. We have been sharing whatever the number is year- on- year quite actively. Rajendran, what was the number this year? It was between INR 15 crore and INR 20 crore, yeah? This quarter?
Around INR 20 crore.
Okay. INR 15 crore and INR 20 crore. Sorry, Rajendran?
The PSI incentive, I am—
PSI incentive. Yeah, PSI incentive.
INR 20 crore.
Yeah. That was the number for the quarter on the supply chain. Then, sorry, what was the other question that you have on the non-recurring? This I covered. On the RE business, I have shared previously on the message also what our outlook is on the RE business for the year as a whole, yeah?
Regarding your comments on building inventory for the export orders?
That is just a timing issue. It is not a concern at all. It is not even a cash issue. All of these are paid for by the customer on the books. In a couple of cases, the customers are also open to paying storage charges and all that. So, inventory is more from getting the profitability out of these. These are not really. You can see our working capital numbers are not bad at all. Working capital numbers are quite good and continue to be robust. We don't see a concern on cash. We don't see a concern on collections. Even on the stuff which is lying in inventory, we don't see a concern that customers are not paying. In all of those cases, the customers have paid substantial amounts of what is lying out there.
Okay, sir. Thank you.
Thank you.
Thank you. Ladies and gentlemen, before we take the next question, a reminder to all the participants. If you wish to ask a question, please press star and one. Next question is from the line of Rabindra Nath Nayak from Nirmal Bang Institutional Equities. Please go ahead.
Thank you, sir, for the opportunity, and good morning. Sir, regarding this industrial project product margin, we said that, you know, 6% for last two quarters we are doing. How, you know, is it already we have already taken some price hike? We have around INR 5,000 crore of backlog right now, which is hardly around three quarters of backlog, we can say, if we go by the last year's second half performance. How much it is been price-sensitive protected for this, the commodity price, and how much price increase you have taken? Can we go to 8%-9% margin in the full year or more than 7% margin in the full year? That is my first question.
For industrial products?
Yes, sir.
For industrial? Oh, easily, much more than that.
Okay. Sir, you recently launched Thermax-i series, including boiler and heaters product in the Boiler India Conference exhibition this year. What is the potential of that? I saw certain other competitors are there in the particular MNC competitors. What is the potential of that product, and how do you see the things for this product in coming periods?
Okay. Let me take the first part of the question, yeah? First part, I actually gave even more bullish commentary than 7% overall for the year for industrial products, yeah? You can see industrial products each year, when the revenue goes up, the profitability jumps up, yeah? That is main part of the profile of industrial products, because the capacity utilization at the plants go up quite substantially. On top of that impact which you see every year between, you will see industrial products between Q4 and Q1, what profitability you have, and Q4 typically has been the biggest quarter, so you can draw that line. On top of that typical impact, here you will see a bigger impact from the margin change happening, because some of your most profitable orders of the first half have moved from the first half to the second half, yeah?
Which is the international shipments that I talked about. For the year as a whole, I am a lot more bullish than just the 7% as a year, as a total number, yeah? We should be doing much, much more than 7%, and certainly aspiring to as close to 9%-10% profitability for the year. Yeah, that is at least. The gap that we see is little bit of the impact on, more than a little bit of impact on commodity prices. But a big movement in industrial products overall is what I would commit to already based on what we see.
Okay. Thank you, sir—
That was the first point. The second point I will take you is on new products overall. On new products overall, Thermax has been doing very well. In fact, our entire cooling portfolio that you would see is a portion of it. Everything that we are doing on the India cooling space is completely a new range of products in cooling that we have launched as part of SustainX portfolio. It can not only do very high efficiency, what we are calling as hybrid CLCTs. We also have heat pumps where some of the technology that we have launched is competitive with, from a technology standards perspective, with globally best, yeah, in terms of what we are able to do. We can do heat pumps up to 120 degrees Celsius, and now aspiring for 140 degrees Celsius also, adiabatic cooling towers also. We have, from the technology front, quite good.
On electric boilers, which is a range of products that we have launched, we have become India's number one by far provider of electric boilers. Again, we are seeing good uptake on electric boilers. In our announcements, you will see in this last quarter, we got a gas purification order for green hydrogen. This is not where we are providing electrolyzers. The electrolyzers are coming from somebody else. It is one of India's most high-profile green hydrogen projects, where we are supplying the gas upgradation system. We have got, in industrial products, a whole constant stream of new products that are coming out, which are doing reasonably well in the marketplace, which is also one of the reasons why, on industrial products, committing to growth over last year, and overall continuing to be on that good double-digit growth is something I can say with confidence.
Coming specific to the i-Boiler. The i-Boiler is something which is unique, not just for India, but world over, yeah? The amount of science and patents that have gone behind it is something that we are super excited about. At the simplest, if I have to explain to you, is if you think about a car going, and a car which is going through multiple different scenarios relatively quickly, which means it's going through a hill, then kind of something in the environment changes, braking changes, many, many things that happen in the environment. Today, all boilers run manually, which means the human has to take a look at a whole family of parameters and then decide what changes they want to bring in terms of the amount of fuel to feed, the amount of air to feed, the positioning of various dampers, valves, et cetera.
Lot of that becomes a human decision. What we have introduced now is an automatic boiler, where the boiler itself is self-learning. It anticipates there is a change in the process that is coming or a change in the input conditions and optimizes itself very quickly. In almost all trials that we have done, we have seen that compared to how the customers were operating it themselves, the intelligent boiler gives them a substantial jump in efficiency that they can get. Now if I come to what is the market potential for these, the overall environment, overall scope is what is a big portion of our heating boilers.
Yes, we think the applicable size of the market in the first set of cities that we have launched is of the order of few hundred crores because our overall heating business is about, without giving exact numbers, between INR 1,500 crore and INR 2,000 crore, of which a substantial portion, one of the biggest product lines is where we have introduced this capability. This is premium. This is like the highest priced product in the market because there's nothing like this anywhere, not just from Indian companies, not from anyone internationally as well. This will only go to customers who are willing to pay a very high premium for this capability, and in return, they will get very quick payback in terms of the efficiency that they will get. We will come back and share what the uptake is.
But overall, as a family, what new products is doing for industrial products, that portion is something that we are doing quite well with.
Okay. Sir, one last question. Currently, some government is developing a scheme of community boiler. What is your view on this and how it's going to impact our business in future, positively or negatively?
That is good for us in two ways, because one of the largest players of community boilers, a company that supplies community boilers, is actually working with Thermax's boilers only. The boiler comes from Thermax. They provide the overall business and the servicing and all that. In fact, that company is India's largest provider. Thermax too is capable of providing these solutions under TOESL, but only if it is 100% green. There are some opportunities that we are looking at for community boilers. Not only community boilers, even community water, district cooling, many of those places, Thermax would have a play. Community boilers, our play would be the highest.
Okay. And sir, in the industrial infra project, there was a INR 20 crore—
May I—
—of incentive—
If I may come back to you later on, as I said, I'll—
Totally, sir. No problem.
Yeah.
Thank you.
Thank you.
Thank you. A reminder to all the participants, to ask a question, please press star and one. We will take the next question from Amit Anwani from PL Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. My first question on FEPL. You did highlight it, maybe the impact will continue. What could be the size of impact in H2 in FEPL? Broadly, I recollect we wanted to, as a long-term strategy, go 900 MW - 1,000 MW in next few years. I just wanted to understand, even the impact should continue next year also, and what is the status as on today in terms of network and investment here?
Sure. The business itself, the level of hit that we have taken in the first half, we expect that a similar impact or even slightly larger than that is possible for the second half of the year as well. That is on the first part of what you asked. The business itself, we are, as I had mentioned last quarter as well, we are looking to bring in external growth partner to come in into the business. That is something that we expect the whole thing to get finished by Q1 of next year . Right now, as we speak, the IMs have gone out. The detailed due diligence of the assets and all that is about to begin. Post that detailed due diligence, we will get non-binding offers.
Before this financial year, we expect that at least one binding offer we would have that we would want to look to conclude with. That is the timeline. I think what the future of that business is next year and beyond, I would like to wait a bit because there is a whole process that we are going through. Looking too far ahead may not be correct. Okay?
What is the megawatts as of now and investments in that business?
I think we will, as part of the IM, we are starting to share quite a bit of details. I would wait because we have got a whole process that is going on underway. I would wait on sharing because as part of the IM, we are sharing quite a bit of detail. I will wait for some of that process to progress, and then I can come back and share. Okay?
Yeah. Second, sir, on CBG, what is the similar again, the question, in terms of impact? Are we taking more orders, and what is the current order book in CBG?
For the nothing. Right now, the order book that we have is about INR 138 crore, which is INR 130 crore, INR 100 something crore. Yeah, between INR 100 crore. Yeah, Rajendran, what is the exact number of the backlog that we have in CBG that we are finishing the execution on? Which is largely PGTR and customer retentions and all that.
Yeah, right. It is between about INR 130 crore, yeah. INR 130 crore.
Yeah, so INR 130 crore. Yeah, so that is the number which is remaining. We have not taken a single new order in the last three years, practically, 2024 beginning. So two and a half years. Yeah, we have not taken a single new order. Whatever has been, has been just change orders, et cetera, on the existing plants that we are working through. Q3 also, I do not think we will be booking anything in CBG. After the GOBARdhan scheme, the interest has gone up substantially.
There are a lot of discussions going on. I do think in Q4 we will book orders, but nothing in Q3.
Sure. Thank you, sir. Thanks.
Thank you.
Thank you. Next question is from Amit Mahawar from UBS. Please go ahead.
Ashish, hi. I just want to understand and spend some time on the second segment, industrial infra. We have a lot of capacity available on Babcock, and can you throw some light on this year, second half and next year, what kind of clients are you targeting in India and out of India on this segment particularly? In light of that, and a practical assessment of how much orders realistically Thermax can target and when some bid-to-win ratio or next two years, what kind of scale this segment can do? Because in the entire scheme of things in all segments, this is by far the most important potential segment, which is not able to realize the potential in the current environment where energy equipments are having a great time. Some color here, Raj. Thank you.
I'll share whatever I think I can comfortably talk about. It is not that TBWES is not realizing its potential. You can see TBWES profitability and its numbers has been getting better and better with each year. Even in our current numbers, if you take compared to last year to now, the biggest jump in our backlog has been TBWES. In this last year, we have added more than INR 2,000 crore of backlog into TBWES. Where we stand right now, we see almost every scenario where this plant will be. With the demand that we have, the plant is already practically sold out. We are right now de-bottlenecking the plant and also spending nearly INR 100 crore to expanding capacity at the plant.
We are also actively working sub-vendors in multiple parts of the country to manage capacity, to add, to enhance capacity where things where we think we have a bottleneck, but somebody else can do that as well. We will take that work outside of our plant and use third parties to manage that. There's a massive effort that is going on increasing capacity for TBWES. In terms of realizing its potential, TBWES is doing a reasonably good job within this demand scenario, because we are very clear, we don't want to take full EPC projects with site construction, civil, all of that, and then take into account the full boiler and the BOP. If supercritical is the specific point of discussion, we are very clear. We want to focus on just the boiler and nothing else beyond that.
With that as the framework under which we are operating, TBWES and even the profitability of its backlog, everything is only getting better and better. I wouldn't say that to your comment where I would push back is that the business is not doing its potential. The business is leading in its space for the boilers across multiple segments. I'll take those segments back again. Thermal in India, variety of other application sets in India, including waste-to-energy, cement waste heat recovery, AFBC, CFBC, all that entire application set. HRSGs and waste heat recovery for refinery and petrochemical plants for Middle East, Africa, power for U.S. for data centers. This kind of wide variety of capabilities, there is nobody else who has it in India, and very few have it internationally as well.
Where we are definitely limited right now is actually on a little bit on the capacity side, which as I said, we are de-bottlenecking. What would the outlook be? Where I cannot commit to is on, say, supercritical as an example. Do I think we will book at least one order? I think there is very high probability this year we will book at least one more supercritical order is my expectation. Will it be multiple? High probability it can be multiple as well. That range between super confident and high probability is just from a numbers perspective is so wide, and some of those decisions then influence what else you choose to do in the market or not is very clear. We are also clear we do not want to overload our plant with just one thing. We have got a wide variety of application sets and capabilities.
We want to be able to do a good amount of business internationally as well with customers that have worked with us, the penetration that we are having with oil and gas customers in the Middle East. We do not want to lose that. So we are very clear we do not want to fill up our plant just with supercritical or anything. We will work in a structured manner with customers. That is as much as I can share.
Very helpful, Ashish. A quick one, say in FY 2028, and you mentioned about segment one. In FY 2028, going by the current, and you have a good order book right now in segment two. It is up 25%+, and I am sure it is largely TBWES also. What can be the best case next year performance in second segment in scale and profitability, whatever you want to share? Thank you.
Thank you.
Thanks—
Next question is from. Yes, please, sir. Go ahead.
Sorry, I will refrain from answering that question. I think the best-case scenario is, of course, is just too range. I think let me share the question at least that I am comfortable answering, which is, it is abundantly clear to the leadership of Thermax and starting with me that this yo-yo thing that we have done in industrial infra is just not done. Yes, it drives a lot of operational heartburn internally. It drives a lot of concerns for our external stakeholders. And that is just not something that is right. My only submission again is that the areas where that said are industrial projects, because when you have a big delivery, and you will have yo-yo impact. Yes, and the nature of this business is such that you will have yo-yo impact. But that yo-yo impact cannot be - 1% and then +13%.
Those ranges are just absolutely not right. Yes, there will be yo-yos, but in a much narrower range. And that first means to get the bad orders out of the system. And there, I can say again and again, for the last three-plus years, there is nothing that we have taken in our backlog that worries us that, wow, we have done again something that we committed we will not do. Yes, so that part I like. I have shared previously also what I think is a reasonable case for this business long term, which means if I take a INR 6,000 crore industrial infra business, of which INR 3,000 crore is TBWES product side, INR 1,500 crore is services, and INR 1,500 crore is EPC, what the profitability mix of that business looks like. And that to me looks like a reasonable case for next year. That looks like a reasonable case, yes?
There is an upside case, and of course, as we have shown, we have been stupid enough at times, there could certainly be a worst case as well.
Got it. Thank you, Ashish .
Thanks.
Thank you. Next question is from Rabindra Nath Nayak from Nirmal Bang Institutional Equities. Please go ahead.
Thank you for the opportunity, sir. Sir, I was asking about this, for the incentive income that it is related to the industrial infra project that you booked in the last—
It is related to. Yeah.
Industrial infra—
Yes, it is related to TBWES business, which is industrial infra.
Okay. Sir, there is an impairment of INR 15 crore in FEPL. What is the potential? Whether any other impairment is expected? Secondly, if I calculate your interest income related to, allocated to FEPL, is around INR 55 crore. Can we expect this would be in the range of INR 120 crore allocation for FEPL this year, full year?
Sorry, I did not understand the question on the interest. Rajendran, would you help us out on the interest rate allocation for the whole year impact to FEPL?
So actually, I also didn't get the question quite well. Rabindra Nath, if you would want to explain that again, please.
Yes, sir. You are calculating your interest cost, FEPL, and you're deducting that, giving the separately right now. Because if you see, there is an INR 8 crore of interest cost in the below the segment item, right? So, I'm just deducting it and calculating the interest cost. If I calculate for two quarters, it's INR 55 crore it is coming out to be, if I'm not wrong.
Okay. Yes.
So, whether this would be INR 120 crore or INR 150 crore this year, that's what I'm asking. It is basically my RE project plan and funding plan of FEPL. You can tell me.
For our operating projects, it would be fair to assume that this would be the interest cost that will be most likely repeat. We will also have to take into factor that recently there has been an interest rate marginal hike that has happened in the market, which will start reflecting going ahead.
There is also a few projects that will come online during the balance part of the financial year, and the interest cost for those projects then will be accounted to the profit and loss statement, unlike now some of them being accounted to the capital cost.
Oh, so we can take INR 120 crore-INR 130 crore this year, full year total?
I have stated that, yeah.
Okay, sir. Okay. Thank you very much, sir. Thank you.
Thank you. A reminder to all the participants, if you wish to ask a question, please press star and one. Thank you. As there are no further questions from the participants, I would now like to hand the conference back to management for closing comments.
Thank you very much. We didn't get questions on some of the other portions. We covered, I guess, chemicals tangentially, and I shared my outlook. Otherwise also, we covered the look on industrial products, on industrial infra. I'm fine. I don't think I have anything else to share at this point. Thank you.
Thank you very much, sir. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your line.