Thermax Limited
NSE:THERMAX
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Thermax Limited
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And a very good morning to everyone that is on the call. I think the analyst presentation has been shared through our multiple channels, so I will limit my talk to pages through the analyst presentation, keep it brief but giving a lot more time to everyone on the call for questions and answers. We live in interesting times. And with that in mind, I think all of our focus for the first 6 months of this financial year was first on making sure that the basics and the fundamentals were taken care of. Here last quarter when we met, we talked about safety of our employees, the importance of cash and the importance of focusing on our customers and on our employees, making sure that we are doing everything correct. We did that in Q1. Q2, we continued with that mentality. You will see that in every one of our metrics. All 3 of these things will come out. In Q2, the business aspect also because the risk of some of those most fundamental risks to that -- that a particular business can go through were addressed. We started to -- the business environment also started to improve. I'm happy to share that as we look into this particular quarter, most of our operations have come to some amount of normalcy. And by normalcy, I would mean 80% to 100% of its capacity, 80% to 100% of its run rate businesses, services, O&M sites all operational, all of our total sites operational, all of our factories up and running. So that bit is -- and not just up and running, up and running at good capacity, capability. So all of that is addressed. The people, the labor issues, in most cases, is addressed. From an economic environment point of view, I would say the answer is still some amount somewhat cloudy. It is cloudy for a couple of reasons. First, while COVID in India seems to be getting better and overall, I mean, every sector, looking at numbers, is starting to get better, the global scenario and even India -- we don't know what the second wave will look like, what future waves will look like -- continues to be slightly mixed. Yes, there are many sectors like textiles in particular where they're starting to worry about exports and future sales, et cetera, so I wouldn't say it is you're 100% up and running. The second bit is on the project side, where last year we had INR 1,000 crores worth of projects more or less based on 2 big FGD orders. It is not that we have lost anything on FGDs this year, it is not that the projects have gone missing entirely. Many of those projects have had a redo because the -- because they're government projects, in many cases, and the budgeting, everything had to be redone because of the China angle. And even on other fronts, people have been very, very cautious in executing major capital expansion plans. So that bit of lack of clarity as we look into the second half is still there. The pipeline exists. The win rates and whether the customers will actually execute those projects or not is unclear, yes? So we are actively bidding on many things, but the outlook would be unclear. Overall, the profit numbers, you would see, and I'll let Rajendran talk a little bit more in detail, it was below what the expectations may be, but there are some good reasons to that. We think the health of the business continues to be good. Cash flow management continues to be exceptionally good. You will see that we have increased our capacity on our chemicals plant. Overall, in terms of capacity, we can talk a little bit more in our expansion in our detailed Q&A, but those were some of the highlights on the -- on our overall capability side. I think from an execution perspective, we have been happy with how we have performed. With COVID, we had nearly 400-plus cases across Thermax. None of these cases resulted in any sort of community spread. In many -- in 2 cases here, 1 in Chinchwad, 1 in Paudh. We chose to cut down operations significantly in 1 case, less significantly in another case, but to ensure that there was no community spread because of our actions. So in all cases, we put safety first. It was also an opportunity for us to bring our digital tools into play in terms of how we track people within the facilities, how did we manage social distancing, et cetera. You would see some of the order book status. Nothing dramatic to talk about except that even in sectors that were like cement, as an example, all the cement applications were primarily around waste heat recovery, yes? So sustainability continues to be high on the agenda for the customers. Customers are getting confident that projects that have 2- to 3-year payback or 1- to 3-year paybacks, the customers are executing and opening up their checkbooks for that, which is good to see because the sustainability helps on -- in larger ways as well in terms of environment and our larger commitments as part of COP21. In terms of business highlights, I think I already talked about the waste heat recovery bit. We -- our TOESL business, which is our Build-Own-Operate model, is seeing good traction. We won our first international project in this regard. It's in the FMCG sector with a top-tier company, which we can't disclose, but we are extremely proud of having achieved that. In India also, the pipeline looks good, and we have had some good successes out there. We won a major order for a heater, which is in the oil and gas sector, one of the -- not one of the, the largest heater that has ever been developed in India for India. We're really, really proud of that. Waste heat recovery we already talked about. Our plant in Sri City, which is something that you would have seen previously that we talked about, which is our cooling plant, has moved to Sri City. In September, we produced 30 chillers out of that plant, which is the capacity that we were hoping to achieve later in the year, yes? So a, from an execution perspective, doing 30 chillers in that plant, which means the plant is stable, the supply chain is stable, it's a highlight for us. We are very, very proud of it. The -- and one more interesting application is working with a paper mill and taking nonrecyclable solid waste, NRSW as it is called. We had a major breakthrough in terms of being able to manage that from an application perspective. And as we succeed with this application, we think there are other opportunities that will open up for us on a similar model. In general, I think waste is -- continues to be something that we as a company can do quite a bit in and that India as a country and many of our international markets also will continue to have some of these solutions and demand going forward as well. In the Environmental segment, the atoM, which is something -- from a product perspective, is a highlight. It is a very, very compact, completely modularized sewage treatment plant unit, whatever you may call. But you can see how efficient it looks from a form factor perspective; how, from a capability and specifications perspective also, it's very good. It is kind of a step for us on the product side and with an expectation that it sets a template for our water business for the future as well. There are some other good opportunities as well as we look into the second half. Not much action on the enviro sector from the FGD point of view, but I shared early on in my brief on the reasons for why that did not happen. In the chemicals business, last quarter we had talked about that our percentage of specialty chemicals was good. We had favorability in terms of input costing from a commodity pricing point of view. We were also able to manage our costs relatively well in terms of our G&A expenses not just in chemicals, in our entire company. So all 3 of those trends continue to hold in this quarter as well. And we had higher capacity availability at our plants. So with the improved revenue, we had improved profitability, and the percentage profitability also improved. So that was clearly very good. Unclear how commodity prices, et cetera, will move in the future, but the focus on making sure that we can continue to build specialty chemicals increases and improve the stability of the capacity addition that we have done. So with this, we have an additional capacity of -- at -- each plant has doubled in capacity from a rated capacity perspective practically. We have 800 tonnes -- metric cube per month additional capacity now. But to stabilize the plant, make it capable for doing very specific specialty chemicals, running that, that will take some time, we think, as long as Q2 of -- I mean, Q1 of next year, but the capacity is now available. And there are many other -- overall, I think increasing volume from this new plant is something that we will look to do. A lot of new applications that the team is having success with. A fair bit of international growth for our chemical segment as well. So clearly a highlight for us across our entire business. In this environment, I think the focus on digital continues to be strong. And while we have cut down investments and expenditure in -- across all categories, digital and technology will be 2 areas where we will increase our spending. Not just now but through the rest of the year, there will be accelerated funding in both of these areas. Remote commissioning, remote management in particular is something that we had plenty of examples both in Q1 and in Q2. But in Q2, our acceleration in terms of remote monitoring from an application perspective, driving solutions around digital, all of that will continue to accelerate. And as we have major successes here in future quarters, we will continue to come back and report those. Some good customer accolades. Overall, in terms of safety, in terms of new projects that we have done, a couple of our customers were really happy in terms of how quickly we executed during COVID times and getting their plants up and running. To be fair, I would say there are customers who are now looking to accelerate deliveries. And where we are having challenges in making sure that our plants can keep up with, you can see our backlog is quite a bit, yes? And during Q1, customers were pushing deliveries out. In some cases even in Q2, customers were pushing deliveries. In most cases now, customers want delivery. So now we are limited more by how quickly we can clear our backlog, which is a good problem to have. But we are seeing quite a bit of that where some customers will come and say, expedite, expedite as much as possible. So we look forward to that. The individual consolidated performances by segment and the detailed financials, I'll pass it to my colleague, Rajendran, to take you through some of the pages that we had shared in our analyst reports.
Yes. Good morning to all of you. So on the investor presentation slides, on the financial performance, I think you have the order booking and the order backlog numbers therein.
Hey, Rajendran, you want to see -- ask if they can hear you clearly?
Okay.
And I'll step back. You can take your mask off.
All right. I hope I'm clear. In the event I am not clear, please let me know. The chemical segment performance, I think, as Ashish earlier mentioned, continues to be as robust, similar to our Q1 performance on the chemical front. Energy & environment segments, I think, as highlighted herein, there was -- in last year Q2, we had a large FGD order of -- for about INR 470 crores that we had booked. And hence, the environment segment had seen a higher order book, and that's the reason why you see a large negative percentage drop on the environment segment. Energy segment has more of our project businesses, and I think traction on that is coming back at this time. Our order book position remains reasonably stable compared to last quarter, and I think we have sufficient for execution in the coming quarters. On the next slide, in terms of the profitability and the key performance indicators, I think while the PBT before exceptional items, that show a dip vis-a-vis the last year quarter, we have had certain -- while we've had some excellent expense control on our other expenses, we've had some onetime expenses relating to our closure of certain overseas entities, some of the onetime items hitting us even before the PBT before exceptional items. And then, of course, there is an exceptional item of INR 25 crores on the consolidated financial that we have had to take, and we have disclosed the reasons for that. I think that's impacted the performance for this quarter. I think excluding these onetime items and exceptional items, I think our performance would have been quite comparable to the prior year Q2. On the segment performance, I think the Chemical segment continues to be the robust-performing segment for us in terms of profitability given the improved manufacturing capacities as well as the speciality resin performance being better than the previous quarter. And I think the expense control that we have been able to do, I think, has led us to report a good number on this particular segment. Environment segment, given the overall improvement in the operational efficiencies and expense control, have delivered a better profitability. The energy segment, we have had challenges in terms of the top line drop specifically in this particular segment and with the reasonably fixed nature of expenses on employee cost and depreciation and a few orders where we have not had the best of profitability compared to the last year Q2, where we had the Dangote large order which we had executed. I think given the challenges on these fronts, on top line drop, material cost and expenses being somewhat fixed nature, we've had some concerns on the profitability of this particular segment for the quarter. I think the subsequent trends on the quarterly trends on the various segments and the order backlog, I think we have shared them with you. And in case you have any queries, we'll be happy to answer them. Thank you. I'll give this back.
Look, thank you very much, Rajendran. Thank you very much again to everyone that's on the call. As I said, we would keep the opening remarks relatively short because all the information is here with the team. Spend more time asking questions you may have. So with that, we can open the floor to questions, if that's all right.
[Operator Instructions] The first question is from the line of Bhavin Vithlani from SBI Mutual Fund.
The first question is on the energy segment, where you mentioned that there was a big impact of the Dangote order. So the, I mean, question here is, what was the share of the revenue from that order in financial year '20? And are we seeing an opportunity equal and/or a multiple of that which could replenish that order and we go back to the original level of profitability? That's my first question.
Okay. Bhavin, I think that was a large order that, as you were aware, it was INR 1,000 crores-plus order in the last year. And hence, the execution of it was definitely helpful. However, this year, we have multiple orders of varying sizes which fills up for that, and I think our order balance figure which is there, which is at a similar level as in the past, should give you comfort that the -- we have sufficient orders for execution going ahead.
Sure. Sir, the second question is on the chemical segment. We have seen a significant improvement in profitability. So it would be useful to understand what were key drivers. And what is a sustainable level of profitability for the chemical segment?
So the key drivers, as I said in my opening remarks, were 3: an increased percentage of specialty chemicals; an overall supportive commodity pricing; and then finally, our cost control, which was on a G&A side across the entire company, which helped us on all 3 segments. But in chemicals also, it has helped accelerate some of the numbers that you have. The trends looking forward, the ones that can hold is the percentage of chemicals. Specialty chemicals may go down in the near future because we are adding new capacity. But the overall profitability -- not the overall, the overall volume numbers and the overall volume of specialty chemicals should both hold. At least that's our expectation and our plan, should both hold. The G&A control, at least for the next 3 to 6 months, should hold as well. Commodity pricing, we can't -- it's not entirely in our control, so we can't talk much about it. So while the mix may change, the overall volume should continue to hold in terms of what we have talked about and increase because we have increased capacity in Bharuch. Cost side, not everything is in our control.
Sure. And any guidance that you could give on us because we have seen a 30% EBIT in this quarter. Historically, we have seen in the range of 18%, 20%. What could be a sustainable number to work with?
Very, very difficult to say because of commodity price movements. And -- but I think these increased specialty chemical portion of our business, that, I think, internally, we expect and we are challenging our teams to hold and improve. But the commodity pricing bit is very difficult to say, yes? So in the near term, it is still okay. But whether will that hold for the next 6 months, I think, or even next 3 years, difficult to say, yes? But overall, expectations for our chemical business is high because, as I said, we have increased capacity. So how do we deploy that capacity now is something that the team is working actively at.
Sure. And just last question. On the order bookings side, we had a reasonable quarter. Vis-à-vis last year, we had a INR 900 crore order from FGD. But are we seeing opportunities in the other segment that we will be able to at least match that level of INR 5,500 crores in current financial year?
I think that will be -- likely be a challenge to get to that level of order book clearly, yes, because the first 2 quarters of the year, we have lost so much ground that while those projects exist, just from a decision-making point of view, they may not come to the table fast enough. So our look in the -- for the next 2 quarters is that our base business should get to the levels it was last year. And then the project ones are not entirely in our hand here. We can be competitive. We can -- we will be very aggressive up to a point. But beyond a point on, we will not accept unreasonable cash terms, we will not expect unreasonable pricing and we will be patient if need be working with our customers, yes? Even FGD is -- the pipeline exists, yes? If you take a look at the number of projects that -- in India and the number of plants that will need FGD, that number continues to be very, very large. NTPC itself has a huge volume of projects that are still pending. But many of them will have slowed down slightly because of the overall -- for 2 reasons here. Many of them will need a rebudgeting because of of the China angle and the association of that China angle with FGD. And secondly, many of these customers outside of the government companies were looking to see if they could delay their program slightly by getting extensions. So some of that work is also going on in the sidelines. So that is slightly -- even in some of the other segments, including oil and gas, we have some big projects for which bids are outstanding. I'm not sure how those movements will be. Also not sure what our win rates will be. So it's tough to come back and commit to a number.
The next question is from the line of Sumit Jain from ASK Investment Managers.
Ashish, compliments on a different set of numbers.
Thank you.
A few quick questions and details. The current FGD order book in the total order book, the absolute amount, the schedule of that in terms of execution over the next 3 years? Digitization efforts, which you spoke about, what kind of savings they can lead to? Or that is directed to, like you said, getting more revenues in terms of remote monitoring, et cetera? The FGD order, one in Saudi, what is the size of that? The chemical business, as you mentioned in your annual report, can be split in 3, 4 segments. But within that, what is the percentage of expected contribution from that: ion exchange, water chemical, speciality chemicals, oil and gas and construction? What of that you call as speciality? And in terms of execution, what kind of percentage all these 4 segments will give in? If I look at the chemical companies in India in last 2, 3 years, especially the promoter driven, even in commodity chemicals, even in tolling or in custom chemicals or in proprietary chemicals, look at their trajectory. So how do you define your chemical business? We have never seen the divisional heads come on con calls from Thermax. What questions are you faced -- will they face? Will you bring them in and so that even they are cognizant of what the questions are getting at? And one last question is on this company's compounding that it has generated over 3, 5, 7 years. So if I look at 3, 5 or 9 years, if I look at FY '11 to FY '20 data, the net revenues have grown at 8%, 9% CAGR 3 years; 5 years, 1.4%; 9-year, less than 1%. PBT is minus 6%. CAGR, 5-year, is 3%; 9-year is minus 4%. So as you take charge, how do you define Thermax, all your niches? What -- where is the scale coming from, that you think it will come from?
Okay. I think the questions that you have asked, we could spend a couple of hours at least trying to answer them. I hope -- I've noted down a few. I'll take them one at a time, and maybe I'll take your last question first, which is Thermax and the growth aspect of it specifically. One thing I will say, what I personally -- and I've said that a few different times on why I joined Thermax, which is, as a company, it is as well run a company as any in India. And I can say that with confidence because while the growth, you can have a debate on whether it was right or should it have been higher, from an overall cash management, from an overall -- what you see, what you get from the company. And just in terms of how it goes about its business has just been fantastic. You will see -- even in this particular quarter, you can look at our numbers one way or the other, but our cash flow from operations has been exceptionally strong, and we have continued to add to our treasury in a very, very strong manner, yes. So that bit will continue to hold not just for this year, through the life of Thermax in a sense here. So the focus on top line to bottom line has always been very, very good. Secondly, I think the fundamental businesses that Thermax works in, which is thinking of Thermax as a clean water, clean air, clean energy company, a company which is very much in the midst of the energy transition that India and the world is going through and a company that can take advantage of many of these trends. And you will see that even in our numbers for this particular quarter. You will see waste heat recovery being high. The last -- this big order that we got from -- on Assam Bio of INR 320 crores for agro, converting bamboo into fuel for 2G ethanol. So a lot of our core capabilities, et cetera, align very well with what the world needs, yes? And the question in terms of how do we bring growth back into the discussion, I think I will request some more time from you and the community because that is something we need to deliver on and not speak. So that is how I would answer your second -- your last question. To the question before, on the chemicals business, not comfortable sharing detail beyond this because it will start to get into some of the competitive bits that are going on because our business overall is not very big. The moment we disclose the next level of detail, I think some of the competitive bits will become visible. Suffice to say we have 4 parts. The construction chemicals and the oilfield chemicals are still relatively small, yes? The capacity that we have added in Bharuch is all for resins, and that is the part which has a fair bit of international exposure as well. Beyond that, our water performance chemicals, which is -- primarily goes into a variety of water solutions, from boilers, from cooling towers, from RO, et cetera, that portion of our business is also doing very well and has continued opportunities for growth that we are very excited about. So chemicals is one that we will be -- we will continue to look to grow and continue to look to invest in now that we have added capacity. There are a lot of other things that we can do to continue to improve, focusing first and foremost on the safety aspect, yes? But overall chemicals, you will see we will continue to invest and continue to be bullish on irrespective of commodity prices. That is the second question. The third question that you had, on FGD, I cannot commit to a specific time line, I would say, the orders that we are picked in, because they have now a lot of moving parts, yes? But I would say that after going through some period of uncertainty because we had to get clearances -- I've talked about this is the only portion of our business where we have some slight dependency on China, getting visibility to those, getting all of that -- I think, yes, with some amount of confidence but not 100% assurance that, that is behind us. All of these now our execution is back into normalcy, and we are pushing all cylinders. So a good chunk of this revenue will start to show up next year, and most of it will clear out the year after, yes? Between these 2 years, I would hesitate to share an exact schedule, while we have one, because there are still parts that are moving overall, okay? So those were your 3 primary questions. The fourth one was on -- Rajen, what was the fourth question?
I think that was...
Sir, before I move that, what is the absolute order book of FGD orders?
The FGD orders are about -- the 2 big orders are the only ones to -- that are particularly exceptional. The Saudi one is not big enough to talk about, and I would not share the exact number of that. About INR 1,000 crores, yes, I think, Rajendran? One was INR 470 crores, the other was INR 500 -- or INR 30 crores?
INR 430 crores.
Okay. So INR 900 crores.
Digitization efforts -- sorry.
We can you both update as of last year, yes, so we can share those numbers.
The digitization efforts, would it lead to certain savings and then, therefore, increase in margins?
So the digital effort is on 2 fronts. I think one is continued focus on just making us -- for example, yes, we are going to go through a complete SAP implementation on our chemicals business, yes, which is not like IoT, but it is still investment in digital because as we add capacity, as we get ready for growth, some additional capability was very, very important. We're also spending heavily in making sure, as you could see, in terms of our overall project execution, bringing PLM tools, bringing capability in terms of automation, et cetera, which is starting to help us show cost. I would not show a number and volunteer a number right now, but we have internal targets. And it -- some of it will show up even right now in our G&A numbers in terms of how we are doing, drawings, automation, cutting down our overall third-party expenses, our engineering expenses. So some of it is internal. A good amount of it is outside also in terms of bringing new models and our remote monitoring, asset management capability. That will take time before we figure out the entire commercial path to it because one aspect is connecting all our devices and starting to get data, which is the path that we are going through right now. The next one is how do you create value out of that data, yes? What will the customer be willing to pay for how much value can you derive? Can that be big enough to start an entire different line of service revenue, et cetera, for you? That will take us some time to answer that question.
The next question is from the line of Renjith Sivaram from ICICI Securities.
Or -- before the team says, the capacity addition is in Dahej, not Bharuch. And the bad is mine because I lived in Bharuch for some years. I did not, I mean, my parents did. I was in engineering at that point. And so I tend to combine Bharuch and the Dahej in some reason. So the bad is mine. The capacity expansion is in Dahej.
Shall we proceed then with the next question?
Please, thank you.
The next question is from the line of Renjith Sivaram from ICICI Securities.
Congrats on good set of cash flow figures. Real happy to see. And also, the -- we see the overseas subsidiaries have delivered profitable performance this quarter. So can you throw some light on your overseas subsidiaries, which are still in kind of pain? And what's your overall outlook on each of those?
I will -- I'll share the outlook. We have multiple overseas subsidiaries. The U.S. and Europe, anything that has been doing with chemicals, with some of our other businesses have all done reasonably well and, in some cases, very well as well. The facilities to talk about is Danstoker and then our plant in Indonesia. Both of these for different reasons are work in progress. Danstoker broke even this particular quarter. But the -- but that particular business, I do not think, we can say, is on its path to recovery primarily because the order pipeline for that business is still not strong, yes, and many of its -- and the segment that it works in is affected by 2 things. We are still seeing the COVID impact in the sectors we play in, in Europe being very high, yes, and very few customers are willing to commit. The second thing that is happening is in a couple of cases. The move away from oil and gas is also hurting us slightly. So while we have done a good job of cost control, overall there is some amount of stability, I don't think we are around the corner because the business is barely breakeven and -- with small movements in future quarters can go one way or the other to a small extent here. I think the movement should not be very big. But that is -- that concern still remains, and we watch it very, very closely. Indonesia did not have a great orders quarter. Its backlog was improved over last year but will continue to be one that we will look at very closely because the pipeline exists in Southeast Asia and it is a market that we think we are there for the long run. So we will want to continue to not look at 1 quarter as -- or 2 quarters as one way or the other. But we are there for the long run, and we'll continue to put our focus in making sure that we build out. Q2 was not great from an orders perspective for our plant in Indonesia, but the pipeline exists. And overall in Southeast Asia, we do see an opportunity pipeline. The win rates are not clear, though, yes, but the opportunity pipeline exists.
In terms of -- you have announced VRS both in the Indian operations and also in the overseas group, what was the major reason for that? And is there any more kind of VRS? Or are we done with our restructuring? Is it because we are not seeing much growth in the future? And what was the idea behind that?
VRS was planned because we -- on our cooling plant, we had started a new facility in Sri City, in the South, which was a modern plant with -- close to the water in many ways and with the capability that we had put in plants quite some time ago. So in that sense, the VRS was not capacity or otherwise related. It was just part of our long-term plan. I would not state anything on what the future can hold because a lot will depend on many, many, many factors. But this is the only thing that was in our plan at [ RCF ] improvement. I think that's how I would answer the question. Rajen then, I don't know if you have anything else to...
Nothing. I think we have disclosed already the impact of it. I think 45 employees took that, and I think an impact -- a gross impact of approximately about INR 10 crores, I think we have disclosed.
Okay. And also, we have seen other expenditure a bit higher this quarter. So is there any one-offy under our other expenditure?
Yes. So I did say that there have been one-off expenditures this -- in our expenses, though I do see that they are fairly in line with our top line drop. But we did have one-off expenditures relating to our closure of some of our foreign subsidiaries, which we have, of course, disclosed a portion of that expenses in exceptional items, but some of the expenditure of which did not classify as exceptional and so they have been taken as regular expenses. So I think -- that number, I think, are there in our other expenses, and that is probably something that you are looking at.
[Operator Instructions] The next question is from the line of Ankur Sharma from HDFC Life Insurance.
So first, if you could just share your outlook in terms of large-size orders across steel, cement, oil and gas on the overseas markets, if there are any large-size orders which you expect. That would be quite helpful to give us some sense of kind of big pipeline you have for the second half.
Look, I would not hazard a guess here because the pipeline is there. There are projects that are in bidding. I think some of these just -- we don't know how -- the pace at which they move. Also, the win rates can't be predicted in advance. Here we announced the Assam Bio one, but we couldn't share that in advance either because it's just you don't know until the last minute how they work, yes? So both for India and outside India, there is a decent pipeline that exists. And I've talked about the areas here, in cement, steel, the waste heat recovery applications that are all in that INR 100 crores, INR 200 crores continues to exist. Oil and gas side, the Rajasthan refinery and a couple of the other 2 or 3 refinery projects that are there, we've made bets on relative areas. We don't know when those bids will open and whether we will win or not here. Internationally, there are a fair number of projects that we have bid on. Not sure what will happen. FGD also, there are many active projects for Q3 and Q4. How fast the customers will move to decision-making, I can't say. Yes, we are -- at least the discussions have started in many cases. That is something I can say. I can't commit whether they will be all decided in Q3 or Q4 or some will push to the next year. I suspect the big ones from NTPC will likely push out of the financial year. That's my suspicion. I don't know for sure. But even with all of that, the win rates are very difficult to say on how competitive these would be. We have been very clear we will look at cash and payment terms and making sure that we will be very aggressive. We will look at cost very aggressively. We'll look at all other things. But we will not take a project just for the sake of taking a project. One thing I will say to the team is, and which the team has done very, very well, is our overall profitability, if you remove these onetime items, we as a business have shown a capability to scale up and down to get to a reasonable amount of profitability. I think that has to be, for us, a minimum expectation, what we speak internally. And the projects are very good, but they can't come at the mere thought of just growth with no profitability at all.
Okay. Fair. And just a quick question on [indiscernible].
And we won't have a project which goes against our expectations and becomes challenging. That's the nature of the business. But looking at volume just for the volume's sake won't be the expectation going in, sorry.
Yes. Sure, okay. And just a second question. I think in answer to the FGD execution piece of the 2 orders that you got last year, I think Q2 and Q3 of last year. I think the -- at least I was expecting that a sizable chunk of the revenues actually start getting booked in second half FY '21. But from your remarks, it seems it's probably going to be more of FY '22, '23 kind of a sales booking. So is it -- have there been some delays on the bookings front? Or is this as per schedule that it takes up to -- like almost it'll take FY '22 for an order which was booked in Q2, Q3 '20. I mean that's a sizable time line between order booking and sales booking. So I just want some clarity there.
Yes. So on the FGD execution, I think there has been a delay a bit on account of the COVID impact at the project sites given that -- the start of the projects. And that -- so that delay has probably contributed to about a 3-month thing. And that's the reason, I think, you're not probably seeing much traction on the revenue numbers in the enviro segment. But going ahead in the balance 2 quarters, you should start seeing some number impact on account of the FGD execution. But yes, a large portion of the execution will be in the next financial year, that is '21, '22.
The next question is from the line of Renu Baid from IIFL.
My first question is coming back to the chemical segment because actually for this quarter, you see chemical has contributed the lion's share of the profits. So if you can try and give us some indication in terms of what was the overall mix of speciality chemicals in the second quarter. And from a medium-term perspective, if you take a 2- to 3-year view, what is the likely or expected mix of speciality chemicals in our revenue profile? And would that imply that on a sustainable basis, margins can then head towards -- in 20% range to that extent from a medium- to long-term perspective?
Please continue, Ashish.
Okay. Look, I think the -- on the chemicals business, we are still working through a phase of growth and some amount of internal capabilities, et cetera, that we are continuing to add. So the percentage of specialty chemicals, give us some more time. Maybe in future quarters, we can come back and disclose. But for now, I think what I would say is the percentage or the volume of specialty chemicals that we have, we would look to hold that volume as we go into the future as well, yes, and hold those volumes and hopefully increase those volumes as well. The opportunities exist, the pipeline exists. As I said, in the short term, the mix may go down a little bit because when you add capacity, the initial volumes that you add in that particular capacity may not be specialty chemicals because the plant will take time to stabilize, customers will want to see production first. We, too, would want to be comfortable that the plant can deliver certain specialty chemicals. And also with customers, converting them from a supplier perspective is not an easy task. So the order volumes in specialty chemicals, we think we can hold for the near future. The mix will likely change, but the bullishness that we have of growing volume and the numbers holds.
Sure. Sir, the second question would be to understand a bit more on the export incentive side. As in, we have had all 25% of our exposure on the export portfolio, and MEIS benefits, well, a reasonable share of our operating profitability. So a, have you booked any provision in the current quarter on MEIS-related exporting centers? And going ahead, what could be the likely impact on our operating profitability if the benefits don't turn out to be of a similar quantum, the way MEIS benefits are today?
I'll let Rajendran answer one -- first part of your question, and I think he can talk about it.
Okay. So on the export incentive, MEIS portion of it, our export revenues have been a bit subdued compared to the last year H1. I think that the accrual has been, to that extent, lower in our financials for Q1 -- sorry, for H1, and we have been a bit conservative on that front definitely. Yes, the -- with regards to the outlook, I'll request Ashish to answer that one.
Okay. In terms of -- I think on the MEIS outlook, we would hope that the government will replace this with an equivalent or an improved scheme. And I think as a community, everybody should -- all of you should also make a case for that. It is something from an Atmanirbhar/Make In India perspective, all of those perspectives, taking away these benefits is -- hurts businesses. The -- and we would want it to continue. We are -- we will continue to make a case for it to continue. The clarity from the government, I think you are privy to as much information as we have in terms of whether that will happen or not. But we would, of course, want to make a case that it should continue.
Sure. And if I may ask one more question. I've seen we have, in the last few years, added new capacities. And the Phase 2 of the plan was that once these capacities stabilize, we would consolidate some of the old facilities sitting in the heart of the Pune City. So what is the strategy or plan in terms of consolidating certain old facilities and monetizing those investments maybe not in the near term but from a medium- to long-term perspective.
Look, as a company, we constantly look at these terms, and these things change depending on business outlooks, based on a lot of other changes, et cetera. In -- for chemical specifically, there wasn't a plant in Pune at all. It was -- there's a plant in Maharashtra, in Paudh, but not in Pune. But between right now, all 3 of these plants, which is Jhagadia, Dahej and Paudh, all 3 are running at capacity. And there are -- it would be tough for me to comment on what the case may be a couple of years down the road.
The next question is from the line of Abhishek Puri from Axis Capital.
Congrats for a good set of results in a tough environment. Sir, just wanted to check on receivables strength. What led to this large reduction? And where have we made these collections?
So I think, Abhishek, we have been -- I think for the pandemic impact in Q1, I think our focus on cash flow collection has been one priority that I think we have pushed all our businesses to be on. And I think the collections that you see is an outcome of our Q4 and Q1, whatever that we did. The collection focus that we ensured on those orders that we executed was of the high order. And I think -- and so that's what that has resulted in, a large portion of the collections coming through, and that's how you see the working capital improvement as well as the cash balances going up. So they're not 1 specific order or 1 specific customer. They are across all our businesses.
Okay. And the Dangote one is already cleared completely, right? The payments are done?
Not really. The large portion of the shipments are still in progress, and the payments are flowing through.
And secondly, more on a medium-term and long-term basis. Last 3 years, we have been seeing -- last 10 years, we have made a lot of investments in global entities. And last 3 years, you've just been writing them off. You're taking impairments and even the current quarter has been one of the -- have been impacted due to the impairment and shutdown of some of the services business. So I just want to understand, how are we thinking about this business? Are we going to continue, given that energy shift is happening, in a big way towards renewables? Are we going to add capacity and shift it to more on a sustainable products basis? Or what is the thought process there?
So you've asked 2 separate questions. Let me see if I can answer -- give you at least directional guidance on both of these. I think in terms of a sustainable portfolio, I don't think anybody needs too much cajolement of any sort to say you should work your portfolio in that area. So that is clearly something we will do. We are, as I said, continuing to accelerate our technology investments a lot of other ways in that direction. And our portfolio overall and our capabilities lend ourselves for that, yes? If you take segments where like TOESL that I talked about, it is one of the largest players for biomass in India in terms of the amount of biomass we handle, in terms of our capabilities to understand that from an application perspective, what we can do. So the whole space of bioenergy, biofuels is one that is of interest to us, will continue to be of interest to us. I think that is something that is clear. In terms of water, a lot of our capabilities around water filtration but doing that in the most efficient manner, managing tough-to-treat water, doing 0 liquid discharge, having advanced capabilities in many of these segments. That is technologically advanced as well. Advanced project execution capability. All of that is not straightforward and one that Thermax is good at. We will continue to and double down where needed on some of these areas. On the environmental side, I think the FGD is also just an example. But that whole space of cleaning up the air from our plants, whether it be FGDs, bag filters, ESPs, all of those, that's a long-term play in our mind and one that we are very good at in how do we continue to do that in India and in abroad. In many places in Southeast Asia, as an example, the environmental norms are actually weaker than India, yes? And as the environmental norms there improve, there is a trend that equipment from India will be better placed in the long run to participate and take advantage. But those are all long runs, yes? They are not like a quarter or 2 kind of -- they're long-term things that we can continue to do. These are just 3 examples. Even in the case of our chemicals, a lot of the work that we do ultimately goes in purification of water, making sure that water is more recyclable, and in applications that have a long life, yes? And you will see from our investments as and when we can talk about, even on our technology side, we have some potential investments that we will continue to do, which is in this area of sustainability, green energy, clean air, clean water. So that is your second part of your question. To the first part of your question in terms of, I think, international subsidiaries, I think it is fair to say that our performance has not been perfect. I think all the write-offs we have had in the past will clearly say that. We don't talk about the successes as much because they -- we don't have to write them off or otherwise. But if you take a look, our rest of our business in Europe and in America have done very, very well, yes? All our chemicals work is based on exports. Our cooling technology, it has a fair bit of exports. And some of those businesses are extremely important to us and very profitable. Here we talked just something about Dangote as an example of stuff we have done internationally, and we continue to do those very, very well. I think beyond that, some of these other specific subsidiaries, we have talked about them in the early question. And I guess that would be my answer to your question here.
[Operator Instructions]
With just the point on the -- on time, I think we are beyond the set time. If it's all right, maybe we take one last question, and we can -- how many more questions do you see, by the way?
We have 4 participants in the queue. [Operator Instructions] The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, my first question is on the environment segment. I mean while you spoke about sustainability, and it is clearly a theme that is gaining a lot of traction, what we've seen is that it has sort of not grown for us for a long time. And also, when we speak to people in the industry, it seemed the size of orders that come in are pretty tiny, the counterparty happens to be a government or a municipal corporation, and that's why the profitability is also relatively limited for your clients. So I just want to understand, how should we look at scalability of this environment business? That would be my first question.
Okay. So I would say think about it in 2 terms, yes? One is run-of-the-mill environmental solutions, which is every chemical, textile, steel, small or big plant will need some sort of management of pollution at the exit point of whatever it is that they produce, yes? And that is something where norms continue to get tougher, move on, new and new technology will continue to be needed. And those are all relatively small orders. They're not from governments or municipalities. And that is a business which the trend is for a reasonable amount of growth on a continuous basis, which we serve through our product businesses and is relatively consistent. Where the focus for many tends to go is on these large orders, which are FGDs, and there's also another set of solutions, which are around DeNOx, et cetera, which will be a long place because the -- these plans sooner or later, many of the plants, will need this kind of technology ultimately to meet the emission norms that we are committing to as a nation. So sooner or later, that will happen. But the rush to win an order from a top line perspective, mess up your financial terms, take terms with counterparties that may not be viable for whatever reason, that wave happened initially. I hope the market is saner going forward. But we have to be patient here because many of these will go through their ups and downs, there will be delays, people will go back to the government and say, can I get a 1-year extension, 2-year extension, all of that. But sooner or later, this has to happen, yes? So that will be my answer to your question. So there are 2 parts to it, yes? And there is -- even on that clean air bit, because one thing you can look about it is these environmental products, as environment and you are kind of norm different, yes, there's a whole another side which is possible, which is something we need to show we can do as well, which is clean air bit, which is what can you do more for ultimately making our air cleaner. So all of that. I think the space itself is the right space. Looking at it for where are the INR 2,000 crores, INR 3,000 crore orders that, that promised, I don't think Thermax ever did. I think looking at that immediately and in the next quarter or the quarter after, that may be jumping the gun. It may be better to be patient, better to have the capability. And we are one of the few players that have full local capability in this regard, capability to execute projects on scale, on demand with the technology that is available. So we think we will be one of the winners in this segment but in no hurry at all.
Understood. Ashish, my second question is if you could just talk about what is the capacity utilization across your chemical plants today.
So chemical plants, I'll define as specialty resins and as -- Rajasthan has 1 plant, which is our plant, which is in Dahej. That plant, because of safety-related incidents that had happened not at our plant but in surrounding plants, had gone through a bit of a shutdown and start-up overall. So that plant is -- I think, for the quarter itself would have been around 70% old capacity utilization. But right now, pretty much all of our plants are at capacity with -- and almost doubling of capacity, which has been done at the Dahej, yes? As I said, just because you have doubled the rated capacity, it doesn't mean all of it is immediately available because the specialty chemicals is a very complex business from a delivery perspective, yes? So it'll take us another 6 to 9 months to stabilize that plant overall. But for other -- than those specialty resins, we have capacity that is available now on the resin side. Outside of resins, for performance chemicals and for some of our other chemicals, capacity can be added at relatively short notice as volume increases. So we can drive volume overall on the chemical side.
The next question is from the line of Atul Tiwari from Citigroup.
Ashish, just one question on the speciality chemicals. Can you throw some light on what is the end use of these applications and which industries that customers are in? And I'm not asking what's the name of the customers but the end user and the industry. And the second related one is you did a speak about developing your speciality chemicals for new application. So again, some kind of color on what would be the end user, the end industry or any kind of a specific speciality in terms of chemical skin care like [indiscernible] or anything else that you are looking at? Any kind of color will be helpful on that one.
Look, the chemical set is -- for specialty chemicals is very, very wide, yes? And we have had success in multiple segments. And also, because this is very strategic and very competitive, I could not share beyond a particular set on what all we are working on. I think in the business highlights section, you will see a couple of different examples here. So you have a very specific application for a very key account in Saudi Arabia as an example here. We have got multiple water customers that are in the water purification business in America that are customers. We have also worked on a very unique application for a sugar for decolorification as an application. So interesting set of customers, very diverse set of customers, very good mix between India and international. I guess that is all that I can say. Other than that, we're continually working on newer and newer applications on this front.
The next question is from the line of Sumit Jain from ASK Investment Managers.
Ashish, so what is the capacity in the 4 segments in chemicals: ion exchange, water treatment, oilfield and construction chemicals?
I think not willing to share. I think on the Dahej, we have increased capacity, which is on the resin side. Beyond that, I said there is some flexibility.
To what level in terms of tonnage?
So I'd share that number, yes? it is 810 meter cube per month of additional capacity that we have added in the Dahej.
In respect to annual capacity of what meter cube?
It was 860 previously. So it's 860 plus 810.
Okay. And at what sales...
That is specified. That does not mean that all of that capacity is instantly available, yes?
That's understood.
A lot goes into this. Okay, thank you.
Sure. Sure. And the subsidiary, the international subsidiary, right, at what stage do we say that this needs to get consolidated?
So I think we consolidate all our entities. There's no entity...
No. By consolidation, I mean fixing it up. Because if I look at 5-year data, 7 years' data, there's no growth, there are regular write-downs.
So what did you -- so can you repeat your question? Sorry, I did...
So my question is basically, when I pick up a new business segment and it doesn't work for 3 years, 5 years, 7 years, at what point in time does Thermax say that this is not working, let us fix it, sell this, close this or get something into it and improve this?
So I think this -- you will appreciate that this answer will have to be a bit generic because the circumstances would guide us in -- particularly in the boiler works service business that we have hired up, that's -- I think we have a period of close to 7 or 10 years that we have taken this decision, whereas there could be a shorter scenario where we may not be getting orders in a particular geography and we don't see a better outlook, and it could be even in a shorter time frame. So I think it's very difficult to quantify because it's case specific.
And what is the Sri City chillers capacity? And what is the capacity in Indonesia in boilers and chillers?
So I think the chiller capacity, we have disclosed it at the time of the Sri City commissioning. I think it's 400 chillers per annum is the standard capacity but obviously customizable depending on the situation. I think the Indonesia capacity is fairly fungible, so we don't have an exact number for it.
That is measured into boilers and chillers both?
Boilers primarily at this time.
Okay. And one last question. VRS, what kind of savings would that -- will be there in staff costs on an annual run rate basis?
So the overall cash outflow over a period of time, we have disclosed to the impact of 45 people who have taken it...
No, I'm not asking for the impact, I'm asking for the savings that will happen, accrue, because now there'll be less employees.
Yes. So the number of employees which are being -- who opted for this is 45 in number. So that's not a very material number given our headcount. So you'll appreciate.
Are we done with the questions here?
This will be the last question, which is from the line of P. Raja Kumar, an individual investor.
Ashish, first of all, congrats on a good set of numbers. Sir, I have 2 questions. So the first one is on the anti-China sentiment. I think I asked this question last quarter. So I just want to know, do you see any of this converting into orders for Thermax? If you could give some color to that. And secondly, I saw there is one note on the excise order for close to INR 1,300 crores. Just want to know the reason why kind of we are disclosing it now given that this will be for the past year. So if you could give me some more color to that, yes.
The second question, I'll let Rajendran -- Rajen? Sorry, could you repeat your question again, please, the second question?
Yes, the second question is on the various excise demands amounting to INR 1,300 crores, something that I find in the notes to the financial.
Yes. Yes, we believe at this point of time, based off the various tribunal-level judgments that we have seen of similar nature, we believe that we are in a strong position vis-à-vis winning that particular matter. However, of course, the -- our particular tribunal judgment is awaited. Given the pandemic, there has been some delay in the resultant order. But we are reasonably confident given the facts of the case.
Okay. On the China one, I would say maybe there are some sectors that have revived very well based on demand, and maybe steel would be a very good example where the customers themselves are bullish. Are we seeing specific orders because of China? I would say not yet. We would have liked to see. And I will say in some of -- certain cases, there are customers who are continuing to see if the lowest-cost supply can come from China and continue to maintain that thinking. So at least in the sectors that we touch, the change is not as prevalent as I would have liked perhaps.
But what do you think would be the long-term impact of this in terms of the top line?
Long-term impact? Look, right now, from what we can see is -- would be minimal either which way, yes? We have very little dependency on China for our raw materials other than this very small portion on the FGD side. And on the increased demand side, I don't see much of an impact right now. Yes, many of our customer segments do very well, then maybe yes. Or if importing boilers suddenly becomes impossible for -- from China, then that would be good, but none of them have happened so far. Thank you very much. Thank you for hosting us as well, and I wish everyone a good day and a happy Diwali in advance.