Thermax Limited
NSE:THERMAX
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Thermax Limited
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Ladies and gentlemen, good day, and welcome to Thermax Limited Q1 FY '22 Earnings Call, hosted by DAM Capital Advisors Limited.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited. Thank you.And over to you, ma'am.
Thanks, Malika. Good morning, everyone, and welcome to the Q1 FY '22 Earnings Call of Thermax Limited.The management today is being represented by Mr. Ashish Bhandari, Managing Director and CEO; and also Mr. Rajendran Arunachalam, Group CFO and Executive Vice President.I'll now hand over the call to Mr. Bhandari for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Thank you very much. And a very warm welcome to everyone that's on the call.My remarks would be very, very brief, yes. I'll just talk about this past quarter.First, in terms of COVID and safety. And while today we look at the second wave possibly in the rearview mirror, for a good portion of Q1, COVID was front and center; and it wasn't about numbers. It was more about the health and safety of loved ones, yes, people that work at Thermax, people that work as our contractors, subcontractors and their family members and loved ones. And it took quite a bit during the whole quarter from an individual perspective for so many people to get to where we actually ended up, so just wanted to call that entire effort out to attention because, beyond numbers, beyond everything else, that alone was to me the most -- biggest highlight for the quarter that went by.Second, I think you would see that our margins were impacted. Our revenue was also impacted. There were 3 main reasons. One was this whole 3- to 4-week slowdown; 3 week of intense; and 4 weeks, more or less, of a slowdown within the quarter. So 1/3 of the quarter was affected with our operations where we did not have enough people on site. Many of our execution locations in remote locations, et cetera where we had -- where we need 600, 700 people on site, we were getting by with 150. And so the overall productivity for the quarter was quite low. If it wasn't for COVID and natural -- compared to what a natural quarter would look like, it was quite low. Second, in terms of commodity prices, we had quite a bit of an impact from commodity price increases, yes. We -- as I said previously as well, we don't mind if the prices are high but are steady. Because in those cases, we can pass price increases to customers. We can account for it. We can bid accordingly, but when prices go up during a quarter as we had last quarter, then that affects our numbers. And there was a substantial impact to the quarter. Third was in terms of international shipments. Overall, freight prices were high. Containers pricing was high, but more importantly, container availability was very low. So we had in 2 of our businesses 20-plus crores worth of orders that were very high margin that we could not ship out because of lack of availability of containers and related -- and then we had smaller expenses related to COVID; and doing -- testing COVID, various people; doing camps for vaccinations for us, for our employees, sub-vendors. So we have now vaccinated more than -- or nearly 5,000 people through the Thermax effort of vaccination. So all of that was the second bucket.The third bucket was just the order inflow, which was reasonably good. Even if I take the INR 250 crore single order out, what remained was -- which was broad-based, good -- gave a good sense of how we are recovering overall and gave confidence for the team as such that the recovery is broad-based. And we can talk a little bit about these going forward.Within the company, our focus continues to be on making us a greener business focusing more on products and services, new technology coming in, pushing new creative business models like our Build-Own-Operate models forward; and then finally, getting our international business to become not a lag but a strength for us. So we'll talk about how we are progressing on each 1 of these 3 items during the discussion as well.So with that, we'll open it up to Q&A for -- and I think you would have seen the analyst presentation that was shared by the team -- and open to any questions you may have.
[Operator Instructions] The first question is from the line of Sandeep Tulsiyan from JM Financial Services.
Firstly, Mr. Bhandari, if you can give us some perspective on order inflows from various sectors. Because you made a comment that the recovery is more broad-based. We see your orders are being more consistent with -- from sectors like cement and pet chem, but highlighted in the past is that cement orders will be restricted to WHR, while oil and gas CapEx tends to be lumpy. So which are the sectors that you're betting on which can give more consistent inflows going forward, regarding your commentary on boiler [indiscernible]?
I think in our analyst presentation we had shared a page as well where you would see the breakdown. And I think a breakdown looking at it just in a quarter may not be the best judge. If you add up our numbers for the last 3 quarters in a way, which is some amount of stability in the order book, you will see even now you've got food and beverages 6%, pharma [ 5% ], agro 6%, chemical 7%, metals and steel 14%. And refinery and petrochemicals has shown up as a big number this quarter, but it wasn't as big every year and every quarter for the last 2 quarters. This quarter, we have that INR 250 crore international order, which was for a refining customer. So it has shown up, but I would look at this and say very broad-based, yes. There is nothing single which has jumped up and taken over. The base business which is that good 1,200 crores to 1,500 crores, it is on the northern end of that 1,200 crores to 1,500 crores, which to me gives some amount of confidence and strength. Specific to refining and petrochemical, we have been saying that we had bid quite a few projects. And some of these in petrochemical, power overall will come for decision-making through this year, sometime or another. So some of it has started to show up. In other cases, what we are seeing is that in projects where we have been declared L1, especially particularly where government is the end customer, the bids that have gone in are 30%-plus above the budget for -- that the customer has set aside.So in those cases where the budgets are so low -- and the budgets were all decided at a time where steel prices were much, much lower. There were none of these COVID challenges on productivity, et cetera. And so now if those -- all of those projects, if we are able to renegotiate suitably with the customer, which is the government, then they can come sooner, but more likely, they will all go through re-tendering and complications and all that, in which case they may drag on, which is a huge disappointment, but such is what it is, yes. So we see some risk of the bigger projects pushing out, continue to push out, but we see continued strength in the base business as well, okay? And cement, of course, waste heat recovery was the big reason, but in metals and steel, while so far we have had orders coming in from brownfield projects, now we see new plants also going in. But they will -- before those new plants start to show up in orders will take a couple of quarters, but at least you're seeing now expansions coming into play in metals in particular and, to a smaller extent, in cement as well on the big projects side.
[ Okay ], understood. Sir, second question is on the enviro segment margins. We saw the revenue run rate has not dipped materially, but margins are -- have dipped significantly in that segment. So is it due to profitability of some orders in FGD side which are relatively lower in terms of margin? Or it is more like a quarterly blip one should [ read it at ]. And are you facing any execution challenges in the 2 FGD orders that were booked in mid of FY '20? And if you can update us on the percentage completion of both of those orders.
Sure. I'll start. And I'll share it with Rajendran to share more details. Overall I would say the FGD business is the reason why, Q1, our numbers and our margins were lesser because overall the business was impacted, yes. So the rest of the enviro business also have had decent order inquiry, decent pipeline, but because we could not execute many of the projects in the COVID challenges, the impact of the FGD portion is slightly disproportionate. In terms of specifically on the FGD margins, how do we see the rest of the year and how that backlog will get cleared, I'll let Rajendran respond. Thank you.
Yes, okay. So I think we clarified that the FGD revenues have started picking up in this particular segment. And the challenge that we had on the supply chain and the manufacturing facilities for the balance business, I think, has impacted a bit. And we've always clarified that the FGD business has been on competitive margins compared to the other part of the environment business. [ And that's what is ] playing out, but I think, going ahead in the subsequent quarters, we see a reasonable mix of both the businesses coming up for recognition on the revenue side and margins should be better. And traditionally, I think quarter 1 with a lower revenue and then a higher fixed expense base has also caused for some bit of challenge on the margins in the segment.
Sure. Sir, on percentage of completion in both these projects, if you can.
Sorry...
Percentage completion.
Percentage completion would be still in the early numbers because we were -- I think, last year, due to COVID, we did lose a bit of time in execution phase. So I think it's still smaller numbers of completion at the moment, not very high.
[indiscernible] single digit this year and next year. This year, do you want to share a number on how much we think we will be able to close out of this year?
I can give that and share it...
Sure, yes.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
If you could share, what was the working capital and operating cash for the first quarter? And as we are expecting to execute a significant part of the FGD which has a larger proportion of retention, how should one expect the working capital to behave in the current financial year?
I'll pass this to Rajendran as well.
Okay. Quarter 1, we -- on the cash flow front, we have been net positive. I think we've highlighted that in one of our presentation slides, I think, to show that our cash balances have increased. You would notice that in Slide 4 of our presentation. It's increased by 47% compared to last year's Q1. And also it is higher than the last quarter, March '21, numbers by about -- additionally about 200-plus crores. So on the cash and the surplus investments, I think we are [ on the right ] for the first quarter. On your second part of the question, on going ahead, the impact on working capital, I think, yes, the FGD business has a retention, but I think we've been able to manage the cash flows in that particular business well. And we don't expect a significant impact, but yes, also you would notice that current order inflows will also call for some investments on our working capital side, inventories and others. So we may not -- we may see a similar run rate of cash accrual in the subsequent quarters. And I think -- that's what I think we are continuously working.
[ Sure ]. And just last question, on the chemicals margin, sir...
[indiscernible] on FGD. I think many in the industry have had challenges relating to working capital, specifically on FGD projects. Both the projects we had taken were taken with the intent and expectation that the overall payment terms, et cetera were not as challenging as they are otherwise in the older projects that happened on FGD. So I think there we expect a slight reduction in working capital but not dramatically different from where we are currently.
Sure. The second question is on the chemicals margins. Last year, you were mentioning that there was some bit of extraordinary element. So the margins that we have seen in the last couple of quarters, would it be fair to say that these are the normalized levels that one can expect?
I would like to think so, but as I said last time, there are some things that are in control. Some things are not in our control. What is not in our control is the styrene pricing and how much of that styrene pricing movement we are able to pass to our customers, yes, because our customers in many cases have choices and alternate options. And so this is a very, very competitive space. Where we can price -- move pricing around to fair extent but depends on -- if it continues to go up at this crazy rate, how much can you increase, yes? So I would like to think this is the numbers where we are more systematic of where we have been historically. Now the focus is on volume increase; productivity; making sure that, all the specialty chemicals, we are able to continue to maintain the volumes. So focus on those things that we can control and have very short contract terms with customers on terms of open to styrene pricing and not just styrene pricing. Logistics is a big driver also because of how much of our chemicals business is based on exports. So logistics, transportation, all of that are big drivers of costs in the chemicals business right now.
The next question is from the line of Ajinkya Bhat from Macquarie.
Sir, 2 questions from my side. Number one, in cement, if my understanding is correct, the waste heat recovery potential is somewhere around 4 to 5 megawatts per million tonne of cement output. And so if I were to apply that to recently announced capacity additions of 60 million, 65 million tonnes by cement companies, that's about 300 megawatt of addressable market, let's say, over the next 3 years. How does it look for you compared to your past order inflows in the cement sector, considering that the capital generation part is going away but predominantly it will be led by waste heat recovery? That's question one. And second, related question is that do you have any similar benchmark for opportunity in metal space in terms of how much megawatt of opportunity per million tonne of output, something like that? That's it from my side.
Look, on the first one, your calculations and our calculations are correct. I think the number that you're looking at of -- and my numbers were slightly on the lower end, were more around 150 to 300. So you are on the slightly northern end but more or less in the same ballpark in terms of megawatt of cement plants that will come in. I would say I don't know what the long-term history would be. Compared to recent past, they would be somewhat steady business because what we have had is a run-up on waste heat recovery on existing plants. And so the new capacity is coming in. We'll make sure that, as the existing plants all get upgraded, the old -- the revenue doesn't fall off, yes. So it's not like it's going to go up dramatically or go down. I think we'll see some amount of steadiness [ thereabout ].On metals, we don't have a number because the application set differs a lot between what kind of steel plant it is, yes. So there are steel plants relating to [indiscernible]. And then you have steel itself, then specialty steel, so the number varies, but let me see if I can ask the team to think about a mix by which we can provide some direction on what that would look like, yes. And also, unlike in cement where all customers are now going and doing this waste heat recovery because the payback is very short in steel, we don't see that as much of a slam dunk yet even though you can see, yes, we are getting quite a few numbers from steel, but I'll go back and take this. It's a good point that you have. Let me see if I can come back with some direction on what that market can look like.Sorry, one second. One second, hold. Okay. So -- and to the question on FGD completion, I think the number for this year will be 50%. Today, we are less than 10% as we go through. For this year, it will be 50% of those projects will get executed, and the remaining 50% next year.
The next question is from the line of Renu Baid from IIFL.
Sir, I have a couple of questions. So my first question is when we look at the order inflows ex of the export order, broadly the INR 1,300 crores, INR 1,400 crores-plus of base orders look fairly strong. So what would be the view in terms of broad sustainability of these base order flows? Do we think that [ 900 crores ] kind of execution run rate or the order flow run rate is broadly sustainable? Or it could be more because of lumpiness of some orders getting postponed from the previous year, et cetera. So your views on this will be appreciated.
So Renu, I think this is now the third quarter where, that kind of run rate, we have been able to sustain, yes. So initially it -- was it -- the recovery from COVID and the pent-up demand. So that was Q2 of last year, Q3 of last year. Q4, we thought it was doing -- the base business was doing slightly better than pre-COVID times. That sentiment sustained very well into April, but then May, it kind of -- the April was, across the board, some of our best order numbers from base business, yes, our channels business. All of that was our best-ever numbers, [ kind of ]. May was a slowdown. June, we thought, was pent-up demand, again after the May slowdown and everything, because this time, May affected Tier 2, Tier 3 cities quite a bit as well. July, we have seen recovery. Now it's completely unclear what the rest of the time period holds, yes. Overall, we are seeing strength in inquiries, which gives us strength -- which gives us confidence, but we don't know what the closure rate will be. Is this now a true expansion mode for the industry at large? Or are we still in the recovery mode where the numbers will tail? Because right now we are doing slightly better than that 1,200 crore baseline that I talked about last time, not clear, [ Renu ], not clear.
Sure. And the order flows, also you mentioned that there could be a bit of lumpiness in the domestic market given that customers might like to look -- relook at the pricing side. How should we look at the international markets with respect to order flows? You highlighted earlier that oil and gas is one opportunity where one can expect a big inflow this year. So your views on the international market, including the recovery in European demand, especially that the green energy transition seems to be more swift there. So your views on the international market and flows.
Oil and gas, internationally when we had started the discussion, there were projects in Southeast Asia. There were projects in Africa and there were projects in Latin America. The Latin America one was what has given us not only the INR 250 crore; a smaller order as well in [indiscernible], which did not -- we -- which we had no reason to report, but -- so we have had 2 orders. The Southeast Asia and the Africa opportunities are running slow, yes, but they are compensated by -- in some ways in strength in India in oil and gas and petrochemical and refining. And overall reasonable strength in Europe and America from the rest of the business, like our cooling products, our chemicals business. So we are seeing some strength, and that was also expected, yes. We had said, chemicals, this year, we would want to -- as we increase capacity, we would want to see more growth in Europe and in America, where we will invest in people and invest in capability and expansion overall.
Sure. And my last question, for Rajendran, sir, is in the other expenses. Apart from inflationary impacts on the logistics and other welfare expenses pertaining to COVID, was there any one-off? Because that number seems to have jumped reasonably well. So how should we look at the other expenses in the first quarter of the year?
Okay. So Renu, I think you have an -- you have highlighted an important one. So there are 2 things to this. One is, last quarter, we had this COVID impact wherein the traditional certain fixed expenses on travel, office expenses, et cetera are reasonably a bit down, but in this year we've been working to some extent on -- in this quarter, unlike the lockdown scenario last year, number one. Number two...
[ As well you ] had expenses relating to doing the COVID testing and people and all the rest of the year...
And also the -- last year, if you would have noticed from our financial numbers, we had a very good focus on working on our receivables collection and our ECL provisions that is expected [ to re-clause ] provisions that we made. We had an reversal of that post the recovery of old receivables. And I think that did contribute to our improvement in other expenses in the quarter. Comparatively, I think we've had that lowered in this period. And I think that that's something that has offset that...
One second, everyone. Just [indiscernible]. All right.
[Operator Instructions] The next question is from the line of Amish Kanani from JM Financial Services.
Sir, we mentioned about the uncertainty in the environment in the last couple of slides; and given the uncertainty on the export side with availability of containers and stuff like that, also uncertainty on the raw material steel side. And we might have some hedging strategies there. And also the execution challenges on wave 3 uncertainty that is an overhang in Q2 and Q3. The question is what is the priority for us in this rest of the year. Will the focus be on order book? Or will the focus be more on building more buffers for margin stability? Or we'll be focusing more on, say, derisking of business. And I understand all 3 would be a thing, but how are you looking at all these 3 things and the interplay between them?
Amit (sic) [ Amish ], I think you've answered your question yourself in some ways, yes...
Yes. Your thoughts would be really appreciated.
Between having food, drinking water or wearing clothes, all three of them are important for life. And so all 3 of these are important, no point having orders if you don't have profitability, no point having high prices if you don't win a single order. And through all of this, with all the -- everything that is happening in terms of climate change, in terms of repositioning the business, if you forget that, then you don't have a future. So all 3 of them are very, very important. I will say a little bit: So then if I read behind your questions, I would say, the stuff that you talk about, which are the uncertainties relating to COVID 3, as an example, I think that my personal take is that should be manageable because, even if it happens, as a country, we are much better prepared. And this is not just [indiscernible] the industry is the sense that I get. And many companies, including Thermax, our population from a vaccination rate is extremely high, well above 95% in terms of people that are -- have been vaccinated or have had COVID so cannot get vaccinated. So between the two, relative to eligibility, the numbers are extremely high. So I do think the ecosystem overall will be much better prepared. Or in terms of [ the global ] logistical challenges, that too. You talk about the experts. Most of them will say there is 1 more quarter of uncertainty. After that, the availability of containers should stabilize and things should look better.So overall from an execution perspective, I would say that the remaining 8 months of the year should have some stability in terms of execution. What we cannot control is the commodity pricing. And that, we as a business, we have to figure out how to either pass it on in terms of what we can or have productivity mechanisms in place that you can manage those [ pricing. So ] that is something that we need to manage as a business. I wouldn't call it as unmanageable external risk.
Okay. And sir, in that...
And the [indiscernible] I would say, on -- is in terms of -- so that is on the execution side and making sure. On the order side then, our focus will be on maintaining margins. And if we have to let go of orders to make sure that our margins are protected -- as I gave examples that there were a couple of government orders where, even though we were L1 -- and the customer, which is the government PSUs, would say, "You lower your price by 20% and take the order." We have refused to do that, yes. There's no way, no point picking orders just to fill up the factory. [ We are seeing ] enough volume, [ reasonable ] volume even without dropping our margins significantly. So our focus is on growing and maintaining our margins, yes. So that's the focus. In terms of long term, that is a constant, yes. We -- our ability to invest in digital and ability to invest in areas around green, increasing our capability, that's a given. That -- those budgets are untouched through all scenarios.
Okay. And sir, just in that context, we being a leader in many of the areas where we operate, does it mean that the challenges that we are facing, anyway, will be faced by our competition and peers as well? So there is a reasonable buffer that is getting created in the sense that competition is less than we -- when we kind of book and -- or rather complete and quote? Is that the way we can look at? Or competition is as just as...
[ Well ], competition is always there. I think some of these projects which I talked about where we had increased our prices significantly and we will still [indiscernible]. Is there some reason that the industry overall also is looking at how do we manage these costs? But that is the past year. How do we look at the future remains to be seen. And overall, the capacity buildup in the industry over the last decade was quite high. And really, the last 5 years overall, the capacity utilization was not to what the industry would like to see. So it's quite possible even in this environment. Somebody may choose to drop prices, and I wouldn't be entirely surprised if that happens. We will not be doing that.
[Operator Instructions] The next question is from the line of [ Sriram Rajaram from Ratna Traya Capital ].
Sir, can you give the overall breakup between product [indiscernible]...
Sorry to interrupt, sir. Your voice is not audible, [ Mr. Rajaram ].
Sir, can you give the order breakup sector-wise for outstanding orders, which is [indiscernible]?
[indiscernible].
I think what you're asking for is the backlog broken up sector-wise. Is that the...
Yes, correct, correct, correct. The order balance, INR 6,109 crores which you have reported in slide number -- yes, in the slides. So can you give that breakup? Because you have given it for Q1. So cumulative, we don't have.
Yes. So I think you can refer the -- all right, I'll -- we can refer the Slide #14, where we have given the order balance broken up into segments of chemical, environment and energy. I think that's the level of breakup that we are able to provide.
Okay. That is for Q1, sir.
No, no. That's on the order balance. Order balance [indiscernible] the balance figure as on that point of time. It's not [indiscernible] Q1 [indiscernible].
The next question is from the line of Renjith Sivaram from ICICI Securities.
Sir, just wanted -- whether -- I don't know whether this question has been asked. Like, well, how was your performance of your foreign subsidiaries, Danstoker; and your, well, base station subsidiaries, whether there's any losses [ out there ]. And is that -- if you have some idea on the growth outlook also from those geographies.
Okay. Overall, yes, I think, between the two, Danstoker and [ this ], we have had losses. In terms of a larger overview of our international businesses, Rajendran, would you want to take that?
Yes. So Danstoker, we had a marginal profit number. I think -- so I think that operations have turned around in terms of posting a breakeven or a profitability, marginal though. On the Indonesia one, we are still, I think, in the red. And I think that follows the COVID impact that, that particular business is facing in terms of fresh order book as well as delay in execution of orders on account of customers delaying payments or lifting goods. So I think -- we are hoping that the business in Indonesia, on the order book front, will improve given the inquiry inflows in this quarter. And I think we are hoping to see better numbers in the coming quarters on the Indonesia side. On the Danstoker one, I think the numbers should improve given, post COVID, things returning back.
Okay. And sir, for another question you have answered: There was some ECL-related write-back during last quarter which was absent this year, which increases the other -- increased the other expenditures this quarter. So what will be the amount of that impact of this ECL provisioning that has impacted the other expenditure [indiscernible]?
So I think -- and thanks for that question, Renjith. Actually it gives me an opportunity to get back to that. I'd missed also highlighting earlier when I was replying to Renu on that point, that -- the other expenses. Well, please note our other expenses also include site expenses and contract labor costs that we incur at our sites on -- during our project execution phase. And various of our project businesses go through different cycles of either supplies or execution phase where these expenses peak. That is the site-related expenses peak. So in this quarter, we've had tight expenses and contract labor charges being slightly higher given that some of these projects were having -- were going through a phase of site-related cost execution. And hence, that particular portion has been higher in some of the project businesses that we've had. So that's also a cause for our other expenses being higher, but I think those will have to be looked in conjunction with the -- our material costs because both of this constitutes direct expenses for our business in both the manufacturing as well as project business.Having clarified that, now to your question, Renjith, yes, I think, the ECL annual impact, I don't have the quarterly breakup, but I think that the annual impact is available well in our annual results and the annual report that we have disclosed. [ It would be fair to assume ] a portion of it was booked in the quarter 1. And hence, that much impact, we may not be repeating in this -- we have not repeated in this quarter, at least, and hence [ that setback ].
Okay, that's good. And is this -- does FGD have anything to do with this rising this subcontracting and other expenditure because FGD requires a lot more of site work compared to others? Is that a factor which [indiscernible] because FGD [ build that ] 50% of the order book you are planning to complete this year?
Yes, you are right. I think FGD is the largest project business for us. And during the initial phase, there will be quite a bit of site expenses that will be incurred. And that's also the part of the projects business that I was referring to which has a mix of higher site expenses than dispatch-related material costs [ upfront ].
Okay. And last quarter, we had shared the new strategic areas like waste-to-energy fuel cells and solar, so what steps have you taken post that? And when can we see some on-ground actions from these new growth segments? Anything which you would like to highlight?
We talked about all three of these as examples here. They were not that these are the only three we are looking at but all three of those as examples of the kinds of things we are looking at. Waste-to-energy is something, again, you -- it's got multiple, multiple elements. One element that we talked about last time was municipal solid waste. Specifically there we had talked about doing this partnership with Steinmüller. Now we have localized that technology, localized that capability, yes. So actively we are working with customers and project developers who are looking at municipal solid waste and working with them to establish our technology and bid with Indian capability. Most of these projects in the past were done with Chinese technology and relatively very low Indian local content. There are exceptions, of course, but for the most part. So now to go in and establish us for this particular application, we have to convince the customer we can do it at a price point that is attractive. And then also the projects need to happen. Yes, some of these projects on municipal solid waste had slowed down slightly, but we can -- and this is a long-term thing. It's not something that, just because you don't see projects for 3 to 6 months, you will slow down, but we are happy with the rate at which we have localized the technology.Similarly, on solar we had announced the partnership with Power Roll, but that is -- the testing and development of that will take another 1.5 years, so it's not an immediate thing. On the execution side of solar EPC projects on our business, we saw that, that particular part of our business broke even last quarter, which was the first time in several years that, that business had broken even, which was a good sign, but how do you grow solar and our capability overall in solar? You'll have to wait, but I think there is quite a bit of work going on in that direction as well. Things like fuel cell, and it's not just fuel cell, there are multiple technologies in that dimension, are all driven by a mix of Thermax' own capability and partnerships we do, yes. So as we finish off some of these partnerships and they are in the point that we can share publicly, we will definitely come back and share some of that capability from our side as well, yes, but otherwise, even in terms of BioCNG, biomass, we are running one of India's largest test pilots on coal and syngas to methanol. So working in variety of these new areas, we will continue to do that.
Any capital that we are planning -- yes, I will join the queue, yes, sure.
Sorry to interrupt, Mr. Sivaram. Mr. Sivaram, sir -- the next question is from the line of Bhavin Vithlani from SBI Mutual Funds.
This question is on the EBITDA margins and excluding the other income. And going back in the history 2003 to 2012, the average was about 11%. And last 3 years, we have seen that coming down; and it was 7.4% in '21. If you could give us a more directional picture? As we are seeing a rebound in the short-cycle orders, which are typically more profitable, could we head into a double-digit margin trajectory? And if yes, then -- or what could be a time frame that we could -- we should look at?
Yes. So I think, see, the EBITDA margins, you will appreciate, is an resultant of the -- product of the revenue mix that we have, the current mix where I think we've highlighted a bit on the FGD the margins being competitive that we've had. And in the past, I think we've also had certain large orders on the export front where we've had good margins. So to some extent -- or rather, the EBITDA margin trajectory is a resultant of all the revenue mix that we will have every quarter, but I think the important point that you highlighted on the lower EBITDA run in the last 1 or 2 quarters is a result of these points that I've highlighted. Going ahead, with the good order book that we have on the product business side, especially on the -- with our manufacturing and -- on both chemicals as well as in our energy segment, we should see an improvement to the margins, stability and an improvement to the margins, coming through. I think I can only provide you that level of an estimate at this time and not any specific number.
All right, sure, but would -- just a follow-up here. Would double-digit expectation over the next couple of years be an optimistic assumption or a realistic assumption?
That's -- let me -- I mean that's a bit difficult to answer. Our efforts is obviously to move up the number as best as possible, so I will leave it at that, yes.
Okay, I will add just to say that, at least aspirationally, trying to get there is definitely our effort. And Q4, we got somewhere in that direction. And this year, as we'll start to liquidate our volume, our -- of course, our aspiration is to get there, yes. And a number of 6%, 7%, we understand, is not something that is long-term builds a healthy business for Thermax. The intent is clearly to get as close to that 10% as we can.
The next question is from the line of Renu Baid from IIFL.
Two questions. First, if you can help share some initiatives Thermax has taken to drive its [ package ] solutions portfolio. We had seen earlier last year, first, we had water. And then Revomax was recently launched in the process heating side. So we are seeing [ this flow of package ] solutions across various offerings, so how should we look at the initiatives and growth in this business?
So I think, first, these are all part of our product businesses, base businesses. And how do you modularize them? How do you make your products more standard? How do you make it faster for your customers -- or for you to give customers quotes? How do you make that capability then show up in your supply chain, lower lead times? All of this is a big area of focus, and you will continue to see more and more products of this nature coming through this year. This is also part of the effort that we talked about, yes, which is how do you overall cut costs within the system. And then if you have shorter lead times, not only are you more competitive from a customer point of view. You can manage your supply chain and your costs a bit better also, yes. When commodity prices go up, you can increase your prices on your platforms much easier. So overall thinking about products more like products -- true products and not like semi projects is an area where we are putting time and effort across the sets of businesses where we have these products, yes, our standard heating business, our cooling business, our water business, our enviro business, all of those areas.
And how large will be the current portfolio of these modular products in our overall portfolio today?
I don't think we have called out specifically our modular products, but our products and services mix is part of the larger number that we are sharing, yes. And it's part of our annual report as well...
Got it. Secondly, on digitalization, how is Thermax working to ramp up its capabilities? And have we seen any material traction in terms of order flows from the core sectors or the key user industries and the base industries, consumer-facing industries, sir?
Sorry. Could you repeat your question, Renu? I think, the first 5 seconds, I was speaking and you were speaking as well, so I may have lost some important...
Sorry. My question was on the digitalization side, if you can highlight how is Thermax ramping up its capabilities. And have we started seeing any material traction from customers both in the core sectors like steel, cement as well as in the base consumer-facing industries where we operate?
So we haven't seen material impact yet because our 2 biggest initiatives are not formally launched as yet on the digital side, but within the next 3 to 6 -- 3 months, they will launch. And as we get data back, we will share. We will not share, for competitive reasons, too much right now, but as they start to become successful or not, either way, before the end of this period, we will share a bigger update on digital for the team. But in -- so those are on the initiatives side, but at the back end, in terms of getting digital to be part of the fabric of Thermax, even in the case where we talked about delivering products, how do you quote faster? How do you in your projects side build BIM capability? How do you standardize your drawings, et cetera by using digital? All of that, yes. Within our chemicals business, we've just finished a big [ SAP ] launch and rollout. So digital across our portfolio will be in portion, where as a percentage of business the number will continue to go up. And we are quite comfortable with that and continue to invest in digital. There are certain places where we want to lodge -- launch commercial solutions and new revenue streams based on digital. There we are going to go through those launches in these coming months, so you'll have to wait a little bit.
Sure. And if I can ask one follow-up to Mr. Rajendran: What could be the share of the projects business in the backlog today?
All right, we -- I don't have a quick number to tell you on that front. I think we will have to...
That we can share, though...
I'll take it later, yes, no problem.
We will find and we will share that, yes.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Just one question on your chemical business. If we go back, say, 2 to 3 years, we were doing anywhere between 105 crores to 110 crores of quarterly revenue on the chemicals business. Then we had a new factory where capacity was getting expanded. And what we clocked quarter was 122 crore. Last 2 quarters was also 115 crore, 120 crore range, so my question to you is, are we not seeing the benefit of this new factory in terms of our revenue? Or have prices been softer that volumes have grown? So just want to understand. How should we look at the chemical business, say, from a next-2-year perspective and the ramp-up of your factories?
Sorry to interrupt, Mr. Patni. Sir, there's a disturbance coming from your line. [Operator Instructions]
Sure. Did the management hear my question?
I heard your question loud and clear, and I think it's a very reasonable question as well. Compared to a year ago and now, you will see that our margins are lower, but overall you will start to see that the revenue is starting to trend in the right direction. Yes, it is not to the higher expectations that we had. And I will share why it was not to the higher expectations, but it is starting to trend in the right direction, which means -- this last quarter, Rajendran, what did we clock in terms of orders?
Chemical, we had INR 139 crores.
INR 139 crores, yes, so it is much more than the numbers that you were speaking about. And INR 139 crores on the order side is the -- is in the right direction, and this next quarter, we will continue to equal or better that, yes. So the trend on the order side is also consistent, but the capacity utilization of the plant is still -- we still have quite a bit of capacity to go, yes. So out of the 1,600 rated capacity on the resin side, which can be expanded to 2,000, we are still at the 1,200 utilization of capacity. And therein lies the [ knob ]. We have been a little slow in getting orders because we were not 100% sure whether we would -- our delivery would be available or not because the plant has taken longer to stabilize. And we had originally said also it will take March to June to stabilize and the stabilization period will be long. Specialty chemicals is a very, very unique formulation; and it is like getting 10 things to be perfectly right. And in our case, we are limited by our effluent water treatment capacity, yes. So our water treatment plant has not entirely stabilized, which means the number of amount of streams we can run through the plant is still limited. So -- and it is -- but it is getting better with each week, each month.So as a -- and on the sales side, because of all the challenges that have been there with logistics -- and the worst thing you can do in the chemicals business is commit to a delivery and then not come through. We have been very reticent in committing that we will deliver in this particular period and then not falling through. So we have only been taking orders that we have been very sure of that we can deliver, yes. So because of both of these things, we are not seeing that 100% of utilization is happening immediately, but the trend is clearly in the right direction.
The next question...
Are we done with our time slot? Or we've got 1 last question. We...
Sir, there are about 3 [ full ] questions more. I'll leave it to you, I mean, if you want to take some more.
[ No, no, please. I think ] we have some more time. Please.
Sure.
The next question is from the line of Aditya Mongia from Kotak Securities.
I had 2 questions from my side; the first one, on this fairly good share of products and services that is coming inside order inflows. If I recall correctly [ as per your ] annual report, 50% or more of your business is now coming from this bucket. I wanted to get a sense from you whether this number can further go up from an ordering perspective. And as revenues stabilize around this number, would there be a margin [ or ] fixed fee?
So I think we talked about the whole margins intent. We also talked about our focus areas and at least a couple of them aligned on the products and services side. What we cannot guarantee is that the products and services as a percentage will go up because, projects, if they are profitable and they are good, of course, we will accept them, yes. And we will not only accept them. How to grow our projects business is also something that we take very seriously. And in many, many ways, it's -- and you can see our projects business runs on a negative working capital. It's a hugely important part of Thermax, so the question that we ask internally is not the percentage between projects and products and services. It's the absolute number of products and services and whether that continues to increase or not and whether that is increasing at a rate that we think it should.So there, we would have high expectations from internally. And also I think externally also we can say that whole products and services area is a lot of focus within Thermax. And it's an area where -- we would like to grow that faster than GDP assets, yes. So clearly if Thermax overall has been steady and from an industrial perspective, growing the products and services portion faster than that is definitely an intent.
Got it. The second question which I had was related to your subsidiaries. And maybe it's an out-of-place question because of [ delay to FY '21 ], but I do see that on the -- on your subsidiaries [ Thermax ], for example, you've taken an impairment of sorts last year. Does this relate to Indonesia in any manner? And I just kind of want to get more clarity if it does. Why would a greenfield investment 2 years old be taken down? Is it a demand issue or something else?
I'll let Rajendran answer that.
Yes, you are right. I think the impairment last year, I think, have been clarified in the financials, pertaining to 2 of the -- 2 of our investments. One is the closure of one of our subsidiaries in -- part of the Danstoker Group in Europe, which is our boiler works services business. The other part is, of course, the Indonesia one, where we had taken a provision. This is post the COVID. The business, I think, as you -- as we had explained last year as well as just now in this call, the impact on the Southeast Asia region and in Indonesia, particularly I think on the demand side, have been reasonably high. And we've not seen an -- and considering that impact that has come in this business where we were actually expecting stabilization and then improvement to the financial performance of that unit post 2 years of its investment, I think, caused us to take an provision vis-a-vis the past losses that we have incurred. So the past losses which has been provided for is keeping a conservative view, but I think that's what I would like to add [ to you ].
Okay, I think it's fair to say and it's very clear in our numbers as well that our international businesses that are factory related, yes, our investments, our businesses overall in U.S. and Europe and even other places are very stable, very healthy, very profitable as well. The 2 places where we have plants, major plants, in Indonesia; and in Danstoker, Denmark and Poland, there we haven't done well, yes. The reasons change. We continue to be bullish that they can and the fundamentals are there that the businesses can get turned-around, but so far, we haven't been able to translate that bullishness that we feel into our numbers. I think that's a very fair criticism of our performance over the last year.
Your question is answered, Mr. Mongia?
Yes, it is.
The next question is from the line of Jonas Bhutta from PhillipCapital.
Two questions. Firstly, sir, you've started to give out and call out the green orders that you get every quarter or every year. And particularly, last 2 quarters of FY '21 had a 100% [ strike rate ] of green orders. Now going into '22 and '23, where you did highlight that oil and gas may play a important role in terms of order inflows, these order inflows, including the one that you won in Q1, are these part of the same green initiatives? Or those are still the traditional fossil fuel-based products. And if you can talk about on the refinery side: What are the green initiatives being taken by your clients? And where is Thermax positioned in terms of technology or products to offer as and when that transition were to happen? And this question particularly is over and above the WHR. So WHR part, if at all, is -- used in the hydrocarbon space is well understood. And this question is more from ex side of -- ex WHR, sir. That's my first question.
So most of the applications that are in -- even in refining are in some ways around waste heat recovery. The stream through which you recover this waste heat, this -- and in this particular case, it was downstream of a sulfur recovery unit, which is a [ closed ] process that you see. That's where we were. And this particular order was entirely green because it's not -- the input fuel is not coal or gas or anything, but the application, of course, was in refining. So these kinds of applications, we will continue to see in other places as well. For our large boiler business, which in Q3 and Q4 was 100% green, in this particular quarter, it is 97% green, yes. So still a very, very high number. Most of the applications continue to be waste heat recovery based. There are only now very preliminary discussions starting around using biomasses, if you will, or looking at electric boilers that are -- because at these sizes the applications are very different, yes. And we have one, last -- this last quarter, our first order for electric boilers. And that is something, but it's just, because it's a start, we can't -- it's not a fully big production line, but we have won our first order for an electric boiler, low voltage. And it was done by using technology that we have at Danstoker mixed with pressure parts and the overall cost basis that we have in India. So it is also a very good example of bringing best of capabilities that exist within Thermax to be able to do something unique and different. And you will continue to see in future quarters more and more such stories. I hope I at least answered your question about refining.In our mix for this year, we have -- India itself is going through multiple locations that IOCL, HPCL, BPCL have; have got multiple expansion plans, where Thermax has bid, which are not green as such. Many of these projects, as I've said previously, are going through some amount of delay because of COVID; and worryingly so because of price increases where the government is coming back and saying, "My budget is so much lower. Either you reduce your price or we go through re-tender." And we have no option but to say no because we don't want to drop our prices at all. There's no point picking projects just for the volume alone beneath margin as well.
Sure, sir. This is helpful. My second question is more bookkeeping in nature and Mr. Rajendran can sort of sort it out. Sir, the calculated order book versus the one that you've reported for Q1, there seems to be a gap of about 230 crores, 240-odd crores. And particularly, that gap is in the energy vertical. So is there an order which was earlier taken out of the order book and was reinstated in Q1? And the reason I ask -- and I know it's a relatively smaller number, but that is driving bulk of the growth in the order book, if you see the 17% growth. I -- other than, if I knock that 200 crore off, the growth in the order book is relatively less.
I can't make that out from what you have said. I think we will connect separately with you to see where this gap is arising in your understanding and clarify that.
Sure, sure...
[indiscernible] order take-back or put back in this quarter...
Yes. So we don't see that, I think, but I think, if you have the number calculation, we will connect with you and understand. Can I get your number to have it clarified with you?
Sir, the opening order book was INR 5,227 crores. And we won orders worth INR 1,700 crores but executed 1,050 crores. So then the math does not add up to INR 6,109 crores. It adds up to slightly lower. That is the only calculation that I have.
Okay. I think we will clarify that to you.
Sure.
The next question is from the line of Kunal Sheth from B&K Securities.
My question is pertaining to the service business. Sir, if you can help us understand, what is the share of service business currently and the initiatives we've been taking around scaling up this business? Because our annual report also talks about reorganization of some of the service businesses for increased focus there.
We have the number for the services business. For the current time, we would like to preferably not share it. It will be an area of focus for us. Give us the run rate for a couple more quarters. Get it to some point on where we can share what are our initiatives, what are we doing on the digital side. And then maybe we can come back and relook at this, yes. So just give us some time because it's an area of big focus. We do think we can do a lot better on services. And we have the breakdown internally, of course, across the entire business, but we would like some time to share it and grow it -- I mean, to grow it before we share the gory details of our services business. But before the end of the year, maybe we can -- as the March review, we can come and share a lot more detail of our services business for the entire team, yes.
The next question is from the line of Amit Mahawar from Edelweiss.
[indiscernible] congratulations on your recent set of numbers. Sir, I have 2 quick questions. First is the recent contract that we've won on exports for -- from the sulfur recovery unit. That basically will be done by the reconfigured unit that we have from TBW. What are your plans for this unit? I know it's very well part of our full entity, but generally do you think the differentiation that we have there is going to help us scale up revenues, particularly on that capability? Any number that you can share, what we can have?
There's no number to share, I think, because the export projects come and go. And it's not entirely in our hand whether the project itself happens or not, but what we are seeing is, whenever a project happens, more and more applications globally, Thermax is considered to be a capable bidder and gets qualified for these projects, which is a good sign. The other thing is the modularization capability that we have that allows us to ship entire units preconfigured from India itself so they become plug-and-play at the other end makes us less dependent on local resources and local execution capability, yes. So makes us a lot more confident in our ability to say, yes, can we do this in this price or not? And so how far we can continue to push this, we don't know, but we -- in this particular business, we have seen strength in the last 3 quarters both domestically and internationally. And our large boilers business has been crossing 400 crores on a consistent basis for the last 3 quarters and has a very healthy pipeline looking forward as well. The only downside is that some of that healthy pipeline is driven by inquiries from India itself, where for many of the government projects the project owners want to renegotiate, which is pushing those projects to the right. So that is the disappointing thing, but there is no shortage right now in terms of projects on the -- for the large boilers business.
Fair point, sir. My last question is on exports. Now you've seen a fair amount of how internally things at Thermax have been working. And the way Thermax operates on international contracts also is fairly conservative. And from your previous experience, do you think you've done a fair bit of change internally to integrate with the kind of contracts and with the terms that you have for the global opportunity, especially on the energy side which is a large basket? Or you think there's a fair bit of work that is pending. And my question is particularly with respect to the dilution that one has to see if you go for a large, well, value of jobs in the export market, which is not something that Thermax is always comfortable going aggressive on. So it's more of a qualitative question, sir, if you can answer.
No, I think, in terms of -- on the large projects side, especially as it relates to international, we have not diluted our standards by any means in terms of the terms that we accept, the [ LC ] requirements, the overall profitability expectations; nothing at all. And from what I have seen, so far, at least on some of the bigger projects, there isn't really issue of price as much or of terms. We are invariably able to come to some sort of an agreement. The question has always been about qualifying Thermax and whether -- some of the global players accepting Thermax as a bit of repute essentially, which is where we continue to get better and better on. And with each project that we execute successfully internationally, our reputation grows and our capability and acceptance grows.So here sometimes you end up with local government requirements, yes, like companies in Southeast Asia coming and saying bidders from India are not qualified or, "We would only want -- this project is from Chinese funding and we'll only have Chinese bidders approved." So stuff like that is disappointing to see, but beyond that, if it's a open playing field, more and more, we are being successful in getting approved. And then it's not a question of pricing on terms. I have not diluted that by any means. And even for India, this is not an area where we will be diluting, yes. We have seen -- and FGDs is a great example where so many companies have had massive working capital challenges, all of that because of diluting terms on FGDs. We have not done that. And that was before my time. And I really -- as from somebody looking at Thermax from the outside, I admired Thermax for their resilience of saying no to big, big orders because the terms didn't make sense. And I thought the Thermax stance was proven out. The entire industry has lost so much money chasing FGD projects, and many of them are not bidders in current projects anymore. The industry has to grow up, has to learn; and chasing volume without chasing profitability is absolutely the wrong way to go.
Thank you. I would now like to hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited for closing comments.
Yes. Sir, thank you so much for giving us an opportunity to host the call; and all the participants, for being there. Wishing you all the very best, sir.
Thank you very much. And thank you for your patience and for listening to whatever we may have to say. Sometimes, we haven't answered your questions in the entirety and haven't given you absolute numbers, but I hope directionally I've given you a good sense of how we are looking at our business.Thank you so much for your time. Wish you a very good rest of the week.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you.