Thermax Limited
NSE:THERMAX
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Thermax Limited
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Ladies and gentlemen, good day, and welcome to the Thermax Q1 FY '24 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] I now hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.
Thanks, [ Vik ]. Good morning, everyone, and welcome to the Q1 FY '24 Earnings Call of Thermax Limited. We have the management today being represented by Mr. Ashish Bhandari, Managing Director and CEO; Mr. Rajendran Arunachalam, Group CFO and Executive Vice President. At this point, I'll hand over the floor to Mr. Ashish Bandari for his opening remarks, [indiscernible] which we'll open up the floor for Q&A. Over to you, sir.
All right. Very good morning to everyone on the call. Welcome to the Q1 earnings results for Thermax. So, my first few reflections. First, I think just on what were our numbers like, I would say from a profitability perspective, we did okay in a couple of our segments, but I thought we should have done better on profitability in Industrial Intra. And I do expect that the rest of the year will go better than what we have done. From orders perspective, look decent performance in most cases. We did not do as much as I would have liked in chemicals because if we're looking to make that as a long-term growth driver, the volume growth has to come as well. And that we did not see to the extent that I would like, and we'll talk a bit more about it during the discussion. Otherwise, a fairly stable quarter from an operating environment perspective, I've been saying that our overall inquiry pipeline is decent. That's reflected in some of the larger orders, larger orders look that was multi-segmented which also I shared previously. Commodity prices were stable, not too up, not too down which meant our capability to deliver was also somewhat predictable. And overall, from an execution perspective also, quite a manageable quarter. Some areas where there are ups and downs and all, but they were most relative to what we go through or we went through even a year ago, a much more benign operating environment, yes. So that's also is good. In terms of -- I know one of the big questions will be on the reserves that we have taken and the exceptional item. I will actually repeat the words that we put out in the press release, and I will not be sharing anything beyond the words that we have already shared. And the words that we put in the press release go something like during the quarter, the company received an arbitral award against the company for repair, payment of damages, et cetera, for breakdown of third-party gas turbo generators, GTG for a customer project. As per the award, the company was directed to repair and reinstate the GTG under the defect liability obligation. Further, among other matters, the award also allowed the customer's claim on additional expenditure, along with interest, which is currently estimated at INR 245 crores pursuant to independent legal opinion for the quarter ended June 30, '23. The company has made a provision of INR 50.63 crores, and for the balance amount, no provision has been considered necessary. B, the company is in the process of filing an application before the Bombay High Court for setting aside the entire [ said ] award and is reasonably confident of the issue being ultimately decided in its favor. So with that as the background, given most of you follow Thermax quite closely. I'll just open it up for questions and not spend any more time giving commentary, which you guys are already fairly familiar with.
Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Good morning, and thanks for the opportunity. My first question is, how do you think about the large pending opportunities coming up in second half, especially from the refinery on the [ ignited methanol ]? How that opportunity is looking at this point of time?
Okay. So, the question is specifically on large opportunities and the outlook. Let's say for large opportunities as I look at the next couple of quarters also, not too much in play in the refining space. at least nothing that is of the order of INR 5,000 crores to INR 1,000 crores. Yes, up INR 500 crores, we do have a few opportunities. sub-INR 500 crores, even beyond refining in steel in particular, but also some other areas, including a couple of international projects, there is a reasonable pipeline. Of the sub of the greater than 500 projects, I would say, for the whole year itself, there would be maybe less than 5 projects that we are bidding on. And many of those projects may not get decided in the year. Some of them may not even go through based on customer funding, et cetera, because they are somewhat complicated and then vulnerability. So overall, continue to be less sanguine on the larger orders. But there is enough of a pipeline of good medium-sized projects across the board. Certainly, nothing big on the refining side that would be worth talking about, even in the bidding side.
Understood. My second question is how do you think about the industrial product portfolio, where do you think there could be larger traction over the next 12 to 24 months, something like [indiscernible] if you can just comment on the same?
I would say every portion of industrial products has got some tailwinds, which are relevant. And these tailwinds are driven by all the megatrends that India itself is going through.Yes. So first is just the strength of the overall Indian economy where multiple industries are coming into India. And so many of those industries require the solutions that industrial products provide, whether it be heating, water wastewater, pollution control, environmental pollution control and cooling solutions as well. That is second where we have been somewhat more successful is where there is a connect with green spells. So multifuel firing in the waterside, LD, 0 liquid discharge, which is base ME, MVR, technology, a variety of tough-to-treat solutions and applications, in pollution control as the application gets complicated and environmental norms get more and more stringent. Some of the connect back into being able to provide these solutions, all of it is very important and relevant and interesting. Third, I would say, organization by itself is also for our water business in particular and as there is more requirement that industries do not pollute the waters back. Similarly, as cities have cleaner air. So, some of the equipment and the capabilities that we have developed that they all work to. On top of this, we are focusing a lot on digital solution services. So, to create a very strong backbone in industrial products, make sure that we're doing cross-sell across our products, working well with our distributors, our channel partners. So, a lot of incremental stuff. But I think on the industrial products, we can continue to find some of these newer things that make us better and better for at least a few quarters more.
Thank you. [Operator Instructions] Our next question is from the line of Ms. Bhoomika Nair from DAM Capital.
Yes, sir. Sir, off late in the news, there's been a lot of talk about the OMCs starting to invest and raising funds into CapEx and investing a lot in terms of CapEx. Now while there might not be some near-term visibility of these kinds of projects as yet, when do you think that this will start coming into ordering activities where we could start participating? Does it happen within this year? Or do you think it's more like a 2, 3-year kind of an opportunity?
I think refining in particular, goes in cycles. I think every OMC, as you know, has got a very robust CapEx plan. So right now, there are no new plants coming because HRR just went through Numaligarh just finished and CPCL has got some pipeline, but it's more brownfield activity and no greenfield mega project. But I'm confident that in coming years, there will be those projects. And some of the private players also are looking at petrochemical, large-scale investments, et cetera. No particular timing to offer. But if you're looking at a 3-year cycle or for sure, the fining cycle will come back well before the 3-year period. Yes.
Sure. Sir, my other question is on the green solutions. If you could just give an update on a couple of the projects that we're working on in [indiscernible] as also in terms of total. And if I look at the quarter numbers, there's been some uptick in revenues as also margins. So how should we see the sustaining as we move ahead in the rest of the year as also for the next 1 or 2 years?
I think see, green solutions should be relatively speaking, one of our most predictable parts of Thermax, because once you have the asset in play, then at least the cash profile is relatively well understood. For the most part, there's some moving parts, especially relating to execution. For Total, the execution is primarily around making sure that biomass is available in sufficient quantity. And our plant is running with the uptime that we have committed to the customer. In [ FEPL ], it is driven by completely by uptime and making sure that the panels and the wind turbines all operate to the performance that we have committed as part of our commitment to the customer. And as part of the overall equity plan. So let me take the 2 businesses first. FVPL, we just finished in this quarter itself, a 45-megawatt plus, which was our largest project till date in Gujarat, solar wind hybrid. And I think we did a good job in executing this and compared to the industry, we executed this faster on time and reasonably happy with how the team went about it. Yes. So now we have one project in Tamil Nadu, one project in Maharashtra, and the biggest project so far, which is Gujarat up and running. So, with these 3, we have 70 megawatts plus in play. And our next project, which is 120 megawatts for Tamil Nadu, that is in advanced stages of execution, going through a lot of work on the ground, mostly on schedule. I don't see any major red flags in executing this. And this is also wind and solar hybrid. After that, we have approved next-stage projects for Tamil Nadu, Maharashtra and Gujarat again, and we are now also actively looking at ISTS, which is interstate plays as well, working with customers in other states to whom we can provide this renewable energy on an ISTS basis, which means wind could be any part of India solar could be any part of India and the customer could be in a third part of India, and we can still pull it together. And then looking at storage and some of the other things as well. [ TOESL ], we are continuing to be on the growth track, adding capabilities, adding more projects, and it's a continuous flow in pipeline. And we have a reasonably aggressive pipeline and hope to do our biggest order book for [ TOESL ] over the last few years this year. Yes. So [ TOESL ] 3.5 years ago was less than INR 100 crore, INR 80 crore business. Today, we are at a more than INR 100 crores run rate per quarter. And within a couple of years, we would like to take this to INR 800 crores per year and beyond from a numbers perspective.We continue to see good opportunities, and we are now looking to take the model international as well.
Our next question is from the line of Renu Baid from IIFL Securities.
Yes, thank you for the opportunity. Ashish, my first question is, I heard through your commentary for the last couple of quarters, you were a bit more cautious on the order flow pipeline, especially mid and large-size projects coming through. But if you look at the current quarter on the infra business, [indiscernible] has seen quite a bit of traction in terms of order flows, probably large orders from the core sectors.So, are you seeing -- have you seen a material change in terms of the pace of order finalization across standard products as well as large projects in pipeline? Or these were broadly expected lines and probably second half could be a much more softer period with respect to large order flows?
No, I think, Renu, I would say I was never pessimistic. I always said we see decent pipeline, the recovery is broad-based. I just said, we don't see too many [indiscernible] before last and even Q1 of last year plus projects. The year before, we had 2 projects that were INR 1,000 crore or beyond. I just don't see those size of projects. Yes. But overall, I've always been bullish that we will have a decent year even in the last quarter when you guys really put a gun to my head to say, what is the order outlook for this year. I came back saying that, look, we are bullish for this year. And I continue to be reasonably optimistic that the year itself will also hold out okay. And it's not like I expect the second half to be softer or anything like that.
Got it. Then any presentation highlights the introduction of new waterproofing solution and some initial orders in the building and factory segment. If you can throw us some light in terms of what kind of opportunity will this mean for Thermax and which other kind of target markets you're looking at? And any increase in capacity, manufacturing capacity required for these type of special application chemicals?
So chemicals, I can answer base in multiple ways. First in chemicals, we want chemicals to be a long-term growth engine for Thermax. And in that sense, as I said at the beginning, I don't think we did as good a job in Q1 of growing volume. That said, we remain committed and we see enough opportunity to continue to do new things in chemicals, and we will continue to invest, yes. We put up a new plant in the [ Bharuch ], which is now stable, performing well, took a while to get there, but it's performing well now, and we are happy actually compared to some of the global plans, we have managed to stabilize it reasonably well, maybe not as aggressively as we would have liked to, but definitely much better than the main. And we will continue to invest here. We're going to add more capacity put up a new plant in Jhagadia and then also look at other adjacent chemicals and all, which for just for competitive reasons, I cannot share, but chemicals will be an area where we will continue to invest, continue to grow and continue to have aspirations that we can build this to be a much bigger, more profitable business. That is it. Yes. In terms of newer products that we have released, I think not just for chemicals, which is more of a new application. But across, yes, what we are looking to do in cooling, what we are looking to do in water is to continuously introduce new products, continue to focus on technology-led innovation and not rest just in the areas that we are in, but look to connect to adjacencies here. Like in cooling, we are now getting into and getting quite good at technology relating to CLCT, which is closed-loop cooling towers, very extensive, but require much less water. Yes. And relatively less competitive in India because it's a technology-intensive space. Heat pumps, again, most of the players on heat pumps are global. Nobody does it in India. We're looking to do adiabatic or [indiscernible] is closed-loop cooling towers. Adiabatic cooling towers is the low water-based cooling towers. That is also something that we have developed. We are launching in water, as I said, the whole ZLD space, though to treat water over time. I do expect desalination to become a big part of our water capability also. We announced a partnership with [ PAC ], which also for the ethanol market, provides solution for condensate polishing, which is very novel higher-end technology. So, a lot of new things that we are looking and connecting on.
My second question is, if you look at the operating margins this quarter, in particular, was a bit soft both for products and the Intra segments. And if you see on a broad basis, as you also acknowledge that the commodities have been quite benign now. So by when do we start seeing the impact of these benign input prices reflecting in our margins? Or is there still a bit of baggage from the older projects, which would be on a lower margin basis, which are getting executed currently?
So I think on the industrial infra businesses, you will see a bit of an overhang. Yes. And in Industrial infra, which are long-cycle projects, we tend to book our costs and confirm our costs right practically right when the orders come in. Yes, so we at least like steel, which is the single biggest buy, we order all the steel right then and there when we know the project is there. And projects such as the FGD ones, which are lower profitability will stay lower profitability. Yes. That said, I think Q1 was particularly difficult, and I do expect in coming quarters for some of our good guys where we have some projects at higher profitability. They also will start to show up and the mix should help us give better results.Industrial products. Look, there the benign commodity prices is showing up already. And so I don't think we should expect too much more from commodity prices themselves to help. What we need to do is that in international businesses, which continue to show up as losses and become drags on our India business, the pull-through that we get from additional volume into profitability, we continue to do that. And in heating, which is the biggest driver of profitability in Industrial products. We tend to typically release some of our reserves through the year. So that trend, we will continue to see.Yes. In Q2, though, I do think that our employee expenses will go up, yes, because this last cycle, we have taken a much bigger swing at fixing our compensation. And especially in the lower and medium ranks of the company, where we had attrition where I think in recent years, this would be the highest compensation cycle that we have gone through and the impact of that will also start to show up in Q2. So we have a few moving parts. Overall, I think we can improve our profitability. But it may not be to the overall extent that I too would like it to be. But we will improve our profitability for sure. And we will improve our profitability relative to last year as well for the year as a whole as well.
Thank you. Our next question is from the line of Amit Anwani from Prabhudas Lilladher Pvt Ltd.
Thanks for taking my question. I particularly want to know about distillery being, I can say, 10%, 11% contributor. And in our presentation, we have highlighted the [indiscernible] to be a good growth driver, particularly about this FCI order for not supplying crane distillery, a lot of ethanol companies have mentioned some subdued or overhang on ordering coming in for distillery. Just wanted to understand your view on that.
Yes, we are seeing some cases of order slowdowns and people that were very, very bullishly wanting to place orders now wanting to be a little slower. So compared to the very aggressive nature that we have seen for 6 months now, some amount of business. I do think it does not -- some of the better well-capitalized players will continue to move forward. But what you're talking about is some amount of cautiousness is true.
All right. My second question, sir, in your presentation, you have mentioned about the NFV transition play and you've highlighted quite a few areas. So I just wanted to, for example, gasification and hydrogen. Just wanted to understand your perspective at Thermax, are we actually dissecting any addressable market? Is it still some time away to get orders in this basis? And second thing, for the remaining 9 months, considering that Q1 has been pretty decent with respect to intake, are we expecting to cross recently on the last year's [indiscernible] numbers?
I think, look, the simple answer to the second part is do we expect to cross last year's order intake. Absolutely, yes. Of course, we expect to. And if we could do Q1 without getting a single big order, we would like to continue to keep that single really big, large order. We would like to continue to keep that momentum. Yes, in terms of some of the newer energy stuff, bioCNG is already contributing orders, not just this year, last year is where we took in a few hundred crores worth of orders on the bioCNG side. Coal gasification is technology that we have developed. The government policies are imminent in terms of [ BGF ] so we do expect that to produce some amount of orders this year. Base to energy-based utilization already driving a fair bit of our orders. The last bit is on hydrogen. Hydrogen is much tougher to predict. And I've already always said that. You don't look at hydrogen as a quarter-by-quarter play. Look at it as a 3- to 5-year play, which is in that period, it will become meaningful. The sector continues to have load of announcements and the big announcements that came about were on the [indiscernible] scheme on the PLI for hydrogen is out. I do expect some time this calendar year that those bids will go in. And this financial year, I do think these results will get announced as well. So which will create the rates effectively where multiple companies would be off the blocks. Yes, we also have seen many state governments starting to come out with their policies on banking, on subsidies that they would provide. The hydrogen dally projects are also starting to get announced where government is providing some amount of funding and also the larger projects, some of the private players have announced financial closures. So activity is starting to pick up. I don't think it will result in direct orders for us, possibly maybe at the end of this financial year, but most likely big more action will happen next financial year. And certainly, we don't know how the whole PLI, how competitive it will be all that. It's too early to opine on any of that.
Our next question is from the line of Dhananjai Bagrodia from ASK.
Just a couple of questions. You want to write about a new product launch, which has got to do with waterproofing, could you just give us some details around that? And how do we plan to work on this product?
So waterproofing is part of our construction chemicals line. And see, we have a good product now, but you do drive scale, you need geographic presence through the country. You need to work with more and more distributors with more and more applicators. And today, it's a small part of our business. But these are all examples where tremendous growth is possible. It's our own homegrown technology capability, fantastic products in the small geography that we have launched in, the launch has been fantastic. But it's part of a larger chemical story on how do you take some of these to a much bigger denoment, so to say, yes, because we have very limited geographic presence. We are very limited work in presence with distributors, et cetera, which to me is all opportunities for growth. Yes. I don't look at it from a defensive point at all.
Sure, sure. So this would come under your D2C and this will be something which we would...
No. It will not be B2C at all. We are completely B2B. Yes, industrial applications, industrial sales through distributors, going to applicators, going into all industrial applications, no B2C at all.
Okay, sure. And sir, second, now with so much spoken about around round-the-clock electricity need, we have capabilities. We also have been speaking about how your capabilities in renewable capabilities, including solar, wind, solid battery and hybrid solutions. Are we seeing that much traction in some of the other players, which are showing great order inflows? Are we seeing something along the same lines in this?
So on RTC, we are not seeing order inflows currently. And I would say all the order inflows that are being talked about are primarily on pump hydro, we are not putting up any pump hydro projects nor do we have any plans to put any in the future. Yes. We are looking at RTC for many applications based on batteries. In my view, the commercial viability is getting better and better, but it is not entirely there yet. That said, there are multiple projects where we are quoting our TIC and working on RIC or semi RTS, it may not be round-the-clock power, but it may be much by use of storage, a much more stable renewable power, which means today with wind and solar with solar, you can only do 8 hours with wind, depending on the season, you can only provide a few more hours. Adding wind and solar, you could get to a certain number, can you increase that number. Yes. What is the lowest cost storage that you can bring in that fits very perfectly with the hybrid solution that you have put in, clipping solutions and on that, where you are keeping, can you cut down your tipping by using storage and using that storage to work?So, we are playing around with storage quite a bit. ITIC in full 24 by 7, I think, is a little further away. Yes, pump hydro is the only case where it's been very actively talked about and we are not in [indiscernible].
So as [indiscernible] or any of these projects, would we look at first putting the CapEx on our balance sheet and then servicing clients? Or what would be our strategy along those lines?
So anything that goes through HPCL will be booked on our own balance sheet. And as I've said previously, maybe it's a good segway. On [indiscernible], we had said also, yes, there's a certain amount of funding that our Board has approved, which was along the lines of the numbers that we had spoken last time as well. If the platform wants to grow faster than that, then we will look to bring an external partner in as well.
Okay. And sir, roughly, what would RPC in your estimate make?
So, in my view, it should be a minimum of 15% and beyond. Yes. We shouldn't be looking at any business which is sub-15%. Though on a project-by-project basis, some exceptions may happen because you estimated a project at a particular profitability ends up being lower, et cetera. But from an equity IRR perspective, I think most of what we are looking to would be 15% would be the flow.
And 17% [indiscernible].
What?
Debt to equity ratio?
Okay. Sorry, I couldn't get all of your last bit, but anything else? Or could we get into the next [indiscernible]? Sorry, time was not very clear.
Our next question is from the line of Lavina Quadros from Jefferies. Please go ahead with the question.
[indiscernible] 2 questions. One is on this, I remember you're discussing a Japanese boiler order in the China plus one aspect. Are there any further updates over there or something you'd like to share and discuss? Secondly, you might have mentioned this earlier, I would have missed it. This 11% year-on-year order flow growth, is it entirely based orders?
So first part, I think do we see the China ones, especially in the cement industry, we are seeing China and even other customers also in this space, looking at the Chinese. It's unfortunate, but that's reality. That's the first part. Second part, these are not all base orders because we have had like a single order of INR 250 crores plus. We've also had a few orders that are INR 100 crores plus. So, it's not entirely base orders, but I would expect in the business that we are in this kind of activity, we should be able to see on a more regular basis, any which way maybe not a INR 250 crore order. But overall, I think you could say 70% of this is, 72%, 75% would be base for this year.
And base order growth is in double digits? It's continuing well just to...
Yes, this last quarter, at least the base order growth was double digits. And as I said, yes, a lot on the industrial product side, we have had a reasonably equal quarter. And variety and driven entirely by the India's overall economic trend, fair interest in energy transition-based solutions around fuel shift and like and water and ZLD and many of our products have also done well.
Okay. Ashish, lastly, just on the China plus one. What I meant was I think in the second half of last year, you had won Thermax had on orders from a Japanese company. And you mentioned that China plus 1 might become – I mean it could be an opportunity. So, I just wanted some...
On a similar line last quarter and -- which is now actually into Taiwan, and we are seeing a couple more projects being quoted for international. So that part is a good part, and that we are continuing to see traction on. We have the customer that we worked in, take the first one that went into a European country. Then we got a second order this last quarter for Taiwan. Now there are a couple more inquiries in play as well.
Thank you. Our next question is from the line of Manish Goyal from [ Enam ], please go ahead.
Yes. Sir, if you can share the breakup of domestic and international revenues, revenue growth and order book order intake, after we shifted to a new format, we seem to have discontinued these data points? And maybe if you can provide some more commentary on the international scenario.
So I think we don't share this age anymore in the financial summary that we gave out one second. I have the numbers in front of me. I'm just first trying to check. It is not there. In terms of the order booking, the international numbers were down compared to last time. And overall, our international businesses have underperformed relative to our own expectations. And actually, I would say, underperformed relative to last year as well. The good part is that on the larger projects, which is relevant to what Lavina was speaking about, our pipeline on international is one of the best I have seen in recent years. Yes. So, we have a big pipeline now of larger projects on international, which should be hopefully decent.In terms of mix right now, I would say international relative to this 30-plus percent number for this last quarter was more like 20% from an orders point of view and maybe 25% from a revenue point of view, approximately.
Okay. So on a larger project side, maybe would it be possible to quantify the quantum and in each areas, particularly...
So look, it's not one single project here, and that would be a good thing. What we call as industrial infra, there, the pipeline on international is now a couple of thousand crores plus when those projects will move, the availability, all of that remains to be seen, and it's not one single large project again. But it's this couple of thousand crores plus. It's a mix of waste recovery, waste to energy. Some of what I was speaking on the previous person's question on just pressure parts for global waste-to-energy projects, strength from our [ Danstoker ] business, where we are seeing our pipeline continuing to be strong. So it's a mix of float of different things. But on the larger project side, now our pipeline is both on EPC and on large boilers is now a couple of thousand crores.
Sir, on our Indonesian subsidiary, if you can give us an update how we can...
So there, I think, on Indonesia and Danstoker, both of them underperformed in Q1. And I know last year, I had shared that this year, I would expect both businesses to be doing much better. In Indonesia, especially, I think Q1 was a disappointing quarter on both order intake and also on profitability. And on profitability, as we are executing, we are finding that to meet what we said was building a product as we had sold it. We are not able to manufacture it as we have sold it to the customer. So as delivered, as manufactured, there are costs run up. which is disappointing. So, I would say PTTI may continue to underperform relative to when we finished the year, what my expectation was. Danstoker will come back based on -- it has a good backlog and some of the backlog is profitable. Even though Q1 was tougher, I expect it to deliver the overall year at plan or better because we know the backlog is profitable. PTTI, I don't know, Rajendran, will it be equal to or better than last year at least, even if it's not equal to and starting to get into a full profitable year?
Minimum, I guess, it should be as well last year [indiscernible] that will be it. But if we are able to catch up, I think, in the next quarter, hopefully, it should be a better...
Yes. So that would be a summary.
And sir, last question on the CBG compress the [indiscernible]. You did mention that last year, you got good orders, but are we seeing pipeline improving and probably we read that a couple of large corporates are also getting into the interested setting up this large-size CBG plant. So if you can give us some perspective...
And we are working with all of the large projects and the projects that we took last year are for those customers. I think now, if anything, we are slowing down. Yes, the pipeline and the interest level is massive. We want to execute and finish a couple of these projects before we take more on. And I hope that these customers will also be patient because as an industry, we are entering new ground and new ground on everything. What is the quality of the input feed, what is the frequency of the input feed, the technology, who are the buyers, what specification do our buyers need, what is the role of government? It's all a lot of moving parts. So our focus is on retiring the technology risk and focusing completely on making sure that before we take in new orders, we are able to address some of the concerns on the projects that we have already taken. And these are not concerns from the point of view of – it's more like the chemical story where we said, yes, we know we have to work through these things. We just need to resolve it step by step by step. And get to a place that we have a full amount of confidence.
So because the challenges both on the sourcing of the biomass on one side and then on the evacuation of gas itself. So the ecosystem, do you think that it's been developing and probably...
Yes, it is being developed, but it's not easy. It is being developed. And for example, I'll come back and say you take something like [ Riston ]. Yes, you can come back and say, "Look, I'm setting a plant for 100 tonnes of [indiscernible] per day. On paper, it sounds good. Yes. But then you actually go on the ground and you see what 100 tonnes of [ Risto ] looks like and you need that on a daily basis then you realize the mind-boggling focus on what is it that we need to do. Then you figure out that, look, monsoons will happen. We have been having a load of infrequent rain. Then those sales get wet so how do you process those wet bills, then you see something else showing up. So, the supply chain is all work in progress. But given that some of the biggest names are now in this space, I do think their structure will come in and evolve and this whole space will become more and more formal going forward. Yes. But right now, it's completely work in progress. And it should be, yes. This is what we are looking to do is unique. And it's not like a refinery where every refinery in the world will have the same building blocks. The crude gets moved around the world in some things like bioCNG. The problems are very unique. The solutions are also unique. These are very much domestic things that we will have to figure out.
Sorry to interrupt, one...
Rajedran has a point to say...
Yes. So on this domestic international, since we did a segment change last quarter, we had not updated it. I think going ahead in the next presentation on this, we invite the domestic international split as well.
Sorry to interrupt Mr. Manish. Well, may we request you to join the question queue for follow-up questions? Our next question is from the line of Ashwani Sharma from ICICI Securities.
So my first question is a clarification. I wanted to know, are we bidding on the SECI hydrogen project?
It's early to say. Ask me in a couple of months from now, and we'll see. We're looking at it very, very closely.
Okay. So my second question is, are we exploring opportunities in the district cooling? If yes, then what kind of opportunity do you see in this space?
[Indiscernible] district cooling, if it is industrial cooling base, which is electrical-based cooling, we are not in that space. If it is absorption chiller based and has got other technology capabilities that are needed, we are by far the leaders in that space. So, I suspect that we will not be having the lead in district cooling. We will work with companies and create optimal solutions where our solution will be part of the overall fit that they would have. Are you saying... Including... Coming about?
Yes, there are a few corporates which are talking about the district cooling nowadays.
I'm only one, but if you see more details, do share Yes, I wouldn't mind going deeper into this, yes, because there are globally in part of district cooling like, for example, in Nordic countries and even in the U.S., we are a big part of the overall district cooling solution, even though we don't take the lead. We provide, as part of an overall cooling solution, some of our technologies fit in very well. I know India has been talking about it, but most people I spoke with said economics don't work out and all. But as more and more complexes come up, especially industrial ones, I do think this thing will become more prevalent. I wasn't aware that there were multiple people starting to look at executable projects. I was aware of just one.
Yes, understood, sir. And sir, lastly, in one of your strategic objectives, you mentioned about growing products and services portfolio. When you say growing products, where do you see the gap in terms of products and which segment? And also, what is your strategy in terms of growing services portfolio? That was my last question, sir.
I think I answered that question partly, yes. See, the 3 big drivers for whatever we want to do in other megatrends for India, which is we are in a place where industrial growth is good. New capacity is coming up. Any new capacity irrespective of which industry it comes up in, needs a utility needs water needs some steam that is not all industries, but many industries. So that whole space is driving new inquiry pipeline for us. And here, we are working very closely with our distributors clearing up channel conflicts, working channel penetration. Like it's a block and tackle stuff but very, very important. We are training our channel partners doing all the time. Second is the entire green portfolio, which is industries that have got coal as the usage driver or today have got effluent, which they put out into the sea or into whichever form and tomorrow are being looked at for 0 liquid discharge, how do I cut down my water usage? Third is the trend on urbanization, yes, where switch treatment becomes important waste treatment becomes important. Newer applications like in ethanol and all desalination require newer products, newer capabilities. So multiple drivers that we can see of growth on cooling, as I've spoken about getting into heat pump, CLCs, adiabatic cooling towers. These are all newer areas and newer product capabilities that will continue to drive capability. And even on the heating side, we launched electric boilers. We are providing air pollution control and scrubbers for solar and solar plants that are coming up, where we solar manufacturing is coming up in India. So look, a lot of things. On services, this is a lot of focus has to go in services because when your products are doing well, we tend to not focus on services. Services is the most profitable part of our business. And we have to make sure that as our products grow, we continue to grow services. And in services, we need to focus on penetration, making sure that our spare parts availability and branding of spare parts, we do well. We have to make sure that a lot of value-added services that we can provide to our customers in terms of fuel shift, energy efficiency, uptime, we start to do. We have a big program on the digital front, which is Edge Live and Edge, where we are starting to monitor assets on a continuous basis, some fantastic stories on new insights we have been able to drift to our customers in terms of asset held, asset optimization, which are customers. And this is not for the biggest of the biggest our solutions, what we want to launch is for every run-of-the-mill, textile plant, rubber plant, plywood plant, ethanol plant, any one in every 1 year. We want to be able to provide meaningful cost-effective solutions for our everyday customer for the small business owner out there and certainly increase our penetration. We had a big issue where a lot of our products that got sold through our channel partners, we didn't even know who was the end user, how was the end user using these products. So, a lot of focus on just services, services, services.
Understood. I'll come back for more questions.
That's the last set of questions, yes?
Yes. Our next question is from the line of Parikshit Kandpal from HDFC Securities.
So my first question is for clarification. So regarding this provisioning of the INR 50 crores, so this is for the repair or this is a part of the INR 245 crores.
No, this is part of the INR 245 crores.
Okay. In this repair will come in this second quarter that is already done in first quarter?
It is already done whatever we had to do in spend, we have spent. It still needs to finish in terms of installation, et cetera, but whatever spending, et cetera, we had to do, we've already finished and closed all of that.
And what was the impact on margin? Or what could be that number to get a real sense on what to expect the margins for this quarter?
Yes, it's already done in, in fact, last year and the year before. We had taken some of that as costs that we had taken as part of our business here. So the repair and whatever cost impact was there is already done.
Okay. And just my second question is on the pricing environment now. So one side that you have been technology advancing your product portfolio, the many new technology. So are you able to attract the pricing for it because it's still not reflecting in numbers. So do you think that like other capital with companies we have seen, there has been strong pricing and margin uptick and the benefit of operating leverage playing out? In our case, the margins have been pretty volatile. So how do you see the demand and the pricing environment for our product portfolio?
Yes, I would start to take a look at our segments also in the 4 segments that we are starting to report. And in at least a couple of our segments that leverage has been showing up and will continue to show up. So if you take a look at industrial products compared to last year and this year, that is starting to show up. Yes, many like our environment business used to be low single digits. Now it is starting to move into high single digits. Similarly, water business. Our heating businesses are now double-digit profitability as we look at it on an annual basis. So across the board, we are seeing leverage at least on the product side, continue to go. And as that volume also starts to come in, you can see what our backlog looks like by our segment. There is a nice story on the industrial product side, which is developing. Chemicals also, which is reasonably profitable, we want to continue to grow and build on. The challenge that we have is primarily on industrial intra -- we have, I would say, even on industrial products, we can do better, and I do expect the team to do better. On Industrial infra, some of what happens is the projects that we have taken, we took a lot of projects 1.5 years ago, which were almost bid 2 years ago here, which are all going through execution and all that. Some of those projects were not as profitable even when we took them as we would like. But that said, also Q1 was particularly worse where we had one project with significant negative profitability that also went through. I do expect the rest of the year to be better, how better we will see quarter-over-quarter. But I expect the rest of the years to be better even on the industrial intrastate.
Okay. Last question this [indiscernible] in this process, so anti treaty little debt at the end of first quarter? And what will be the balance CapEx for the year?
Sorry, I think that you would repeat that question because you were breaking out completely. We can't hear the question. Still in PL and something relating to debt on that is...
So Total and EVL, so what is the total capital allocation in terms of equity and debt as of the Q1 FY '24? And what is the total CapEx to balance for the year?
So I think the borrowing at this time is something like close to INR 500 crores in both the businesses put together. And I think on the equity side, we have close to INR 250 crores of equity, which is that at this time in business. And in the total business, we have committed, I think last quarter, we had mentioned that we would be putting in about INR 65 crores of equity for over and above that profitability for the new projects that they would be investing in. So that's the number that I have at this time on the listing. Was there [indiscernible]?
So for the rest of the 9 months FY '24, how much is incremental capital allocation for these 2?
For coal, I told you already about that, about INR 60 crores of equity would be there, but they would also borrow for financing some of that project. The PPL one, I think basis the projects that would come up, we would be further investing in that entity. I think we'll be able to give you an update in the subsequent quarters as the projects do come up.
Ladies and gentlemen, that was the last question of a question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Look, no closing comments. Thank you very much to everyone who attends in these calls and follows the [ math ]. We much appreciate your time and your insightful questions. If there's any feedback from you on things where you would like to see more details from Thermax, et cetera, do right to us, we'll consider that as like the international point that came out, if there were other points also, we look to include them in what we shared with you. Thank you very much.
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.