Thermax Limited
NSE:THERMAX
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Thermax Limited
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Ladies and gentlemen, good day, and welcome to the Thermax Limited Q2 FY '22 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.
Thanks. Good morning, everyone. Welcome to the Q2 FY '22 Earnings Call of Thermax Limited. We have the management today being represented by Mr. Ashish Bhandari, Managing Director and CEO; and Mr. Rajendran Arunachalam, Group CFO and Executive Vice President. At this point, I would like to hand over the call to Mr. Ashish Bhandari for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Hi, Bhoomika, a very good afternoon to you and to all the all the analysts and everyone else that's on the call. We started the call 5 to 8 minutes behind schedule. So we will then get back to the meat of the discussion very, very quickly. I'll be brief with my comments so that we have more time for Q&A. You would have had time to go through our investor presentation, also go through the results that were released in -- with fair amount of detail. If I have to share the highlights of the quarter, I would start by saying that it as a business, and I would say that's not just Thermax. As a country, it seems like India, we have we have moved to a higher gear. And some of the COVID bids, even the V-shaped recovery is behind us. We are now talking about a recovery beyond just a V-shaped recovery, which is something that we are seeing. And I think that's, to me, a larger testament to the strength of the overall industry as well. We have seen a broad-based recovery, continued strength across multiple segments. And if I had to use a crystal ball, I would say at least the next 3 to 6 months also, from an inquiry basis, look good. Yes, there are a few things that can go wrong. And as we go through the presentations, we can talk about what those things could be. But that is -- I think that gives us some amount of confidence. I think what has also been, at least, for Thermax been relevant is that our larger agenda of putting together a company, which is leader for India, at least, in terms of clean water, clean air, clean energy, that agenda continues and our investment in improving our services capability, getting more and more new energy solutions, being able to get the dialogue with our customers to a different level, those -- that work within the company continues unabated. And that is something that is, at least, I'm very excited about. In terms of areas where we had challenges and things that we can continue to do better on. First has been the commodity price challenge, which has been quite brutal. And I don't think, at least, in the near future, this particular quarter, at least, we see no abatement in that. If anything, most of the steel companies are talking about more price increases coming, which is making -- putting quite a bit of pressure on our role -- our financial model as well. Second bit, I think our Chemicals business, and to some extent, our FGD business, but I will -- we'll talk about both of these in more detail. We did not deliver as per our own expectations, and we'll talk about some of the moving parts when we discuss this. Third, I would say, we see attrition starting to go up. In general, people are more in demand, both in the field where we have got labor, which is executing projects and in the offices where you have white collar workers who have got a lot more options, given a lot more robust Indian economy. But net-net, I would say, we take strength in the backlog that we have, the ability to have a dialogue on a lot of new fronts with our customers and the fact that most customers are looking to have those dialogues and are open to investment. We take strength from them. Everything else, we have to manage because the other way around is a much tougher story than having to manage costs and everything else which is as a business leader, that's a challenge that you would look forward to any time given the alternative. So with that in mind, I think we will open it up for questions. Rajendran, anything else to add from your side?
Nothing.
Okay. So with that, we will open it up for questions. And because we started a little late, we will go maybe 5, 10 minutes further on, but definitely stop around 12:25.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
Congrats on a good set of numbers. My first question is with respect to the order inflow. So you had mentioned in the presentation that inquiry pipeline from refinery, cement and metal sectors continue to remain strong. So basically, if you can give a broad overview on terms of nature of orders which are coming in from these 3 categories? And also the ticket size of these orders compared to, say, the earlier cycle, if you can give your broad thought process, it would be really great.
Okay. So a different set of inquiries, I think, it's absolutely right. These 3 right now are the strongest, which is not to say that the other segments are not doing well. I have continued to say that this has been broad-based recovery for the last couple of quarters. And even in the other segments, the inquiry pipeline, which I think reflects in our numbers. Last quarter without a single order above INR 300 crores, we clocked INR 1,850 crores, which was a good testament to bringing in a variety of what would for us would be small and medium orders. And we continue to see strength on that front. Specifically, I take refining and -- sorry, if I take -- first, let me take steel and cement, both of them, the single biggest application is on wastage recovery, which is an application for improving the overall energy situation for these plants and also getting in terms of -- getting, in many ways, addressing their own commodity price increases by becoming more efficient. So coal is a -- as coal price increases, has been affecting everyone. So they're all, I think, waste heat recovery is the single biggest application. The application is very different -- of waste heat recovery very different in steel versus cement, but the idea of taking your brownfield project and making it better is the single biggest. The second biggest driver for both of them is capacity expansion, which in the case of steel means new boilers as well. In the case of cement, it means more waste heat recovery boilers because the traditional, what was a coal-based CPP, is not I think many people are looking at. Yes, people are looking at more innovative solutions. The ticket sizes, if I had to say, range from INR 50 crores to INR 250 crores, I would say. That is the range of most of these. Sweet spot would be INR 80 crores to INR 100 crores, I would say, INR 80 crores to maybe INR 150 crores for many of these. On the other side, refining and petrochemical, there's a much higher variance. Within some of the projects, we are even doing -- and there are a couple of FGD projects, which are very much in the discussion as well, where the range is much wider and you have some order inquiries which are upwards of INR 500 crores and INR 500 crores to INR 1,000 crores. So there the variance is much more, but there are plenty which are INR 50 crores to INR 100 crores in refining and petrochemical as well.
Okay. And so basically, the absence of CPP projects this time, has it kind of reduced the addressable pie for us or is it like per metric ton of, say, steel or cement CapEx, the opportunity size is still the same?
No, it has definitely addressed the -- reduced the addressable by -- the pie itself, in some of these expansions, has shrunk. I would balance that out by saying that in many other cases, the pie has expanded the entire waste heat recovery application is higher, which is an application we see not just here. You see it in distilleries with spent wash. We are seeing it in our -- the applications that we do in our total business where we do build on operate models based on biomass. So there, the pie has expanded, in this particular case, specifically for cement plants, the pie for a new cement plant has clearly shrunk.
Okay. And any other new opportunity of sector, which is -- which you are seeing, which is upcoming which is -- which was not there in the past 10 years or something of the sort?
I think where we will see new sectors may be open up is that new manufacturing opens up as part of PLI -- sorry. So I will -- in terms of new segments that are opening up or new industries that are opening up, I think currently, nothing new. Our current industry set, which is quite wide, continues to be consistent. But as we look to the future, there is possibilities that as new manufacturing of many new industries: semiconductor, solar, they come to India. They will have new power, new water, all of those applications where Thermax could have a role to play.
Got it, sir. And my final question is with respect to the Chemical segment margins, it has come off this quarter also. So is it -- is the 15% to 16%, 18% range is a band at which we will be looking at the Chemical segment in terms of EBIT margin?
Last year, when the numbers had come in, we had said that 30% and the 25%, which we did in a couple of quarters, was not sustainable. Similarly, I would say the 15%, I think, is below our expectations. We would expect to stabilize at a number higher than that. Historically, we have moved -- our margins have been under 18 to low 20s kind of a number. I think that is somewhere we would also target to be. In that sense, there were some things that we would -- that happened this particular quarter that we expect not to repeat but you never know.
[Operator Instructions] The next question is from the line of Charanjit Singh from DSP Mutual Fund.
So my question is, firstly, on the -- apart from cement and steel, if you can highlight what is the kind of opportunity which is picking up on pharma, food and beverage, chemicals because those sectors have been consistently doing well for us. And in the short cycle product side, how do you see the momentum going forward? Can it further accelerate from here? That's my first question.
So I would say, first, I think food, pharma, chemicals -- food and pharma, in particular, I think we all saw that after the first wave of COVID. These were the plants that had maximum demand, had urgent supply requirements. So they started fastest and their demand picked up very fast to the point that many customers were asking for acceleration of deliveries, et cetera. I think that is now, I wouldn't say plateaued, but that acceleration has slowed down for sure. And I think in many of the customers that we talk to, at least on the food side, they are seeing slowness in demand as well. The inquiry pipeline is still healthy. It's not crazily growing, but it's a very, very healthy pipeline. And as I said that already that our short-cycle business, not just here, across multiple segments, is something that is strong beyond just a V-shaped recovery. It is also that we have invested a reasonable amount on our services business, even our Chemicals business, you will see -- while our bottom line is not something we are happy with, our top line is starting to trend in the right direction. We think it can do even better. But at least it's starting to trend in the right direction. And many of our water, our enviro businesses, our heating businesses, even in solar, which are somewhat more shorter cycle, we see continued strength. These are also areas where we have introduced several new products, many of which have got green connotations and are significantly efficient from an energy perspective, we see a reasonable amount of strength.
Okay. Sir, the other question is, especially on the chiller plant which we had set up, and we were also moving capacity from Pune to the new Chiller plant. How is the ramp-up happening at that chiller plant? Are we also seeing some export opportunities we can cater to from that plant? And secondly, also, if you can give us update on the Indonesia facility, how is that ramping up?
Okay. On the chiller plant, we are happy with the stability of the performance. I think over the last few quarters, the plant has now stabilized in terms of capacity, in terms of production, in terms of its ability to deliver and in terms of quality as well. Here, I would say our chiller plant, perhaps for the kinds of products that delivers, is best-in-class, not just for India but with its competitors from China and Korea and other places as well. We're really proud of the plant. It is coming out with newer products and it's competitive. We see the margins in our cooling business over the last 3 quarters have continued to improve and the productivity of the plant improves. The demand is stable. I would not say the demand is extremely high or anything, but the demand is stable. And with the help of newer products, we are having reasonable incremental growth, which is, I think, we are happy with. In our Indonesia business, in Q2, we did not see improvement, which is something which I had set up previously as well that we are not seeing improvement in performance. The heartening bit about our Indonesia business is that as Indonesia and Southeast Asia has come out of COVID, we see an improvement in pipeline. So the pipeline that we have for Indonesia is our best ever. Now are we able to win that opportunity pipeline or a portion of that, are we able to convert them into orders, those orders that we convert, are we able to deliver them profitability -- profitably? I think that will be the key. But I take strength that for the first time, we are seeing a good pipeline in Indonesia. And I think our focus now, which is something that within the next 3 months, we should be able to come back and report whether the order book has improved and then subsequent quarters, whether that order book, if it has improved, is it starting to result in improvement in bottom line as well.
The next question is from the line of Kirti Jain from HSBC.
First question is with regard to our European businesses, how has been the turnaround? Or what are the things we are trying to do to improve the performance of our European businesses? And correctly, how much are these loss-making subsidiaries and businesses which are creating the track? That's the second question. And third thing is if you can give some perspective on how you are transitioning to create products and solutions for hydrogen, if you can give some data on that, that would be quite. These are the questions from my side.
Okay. On our international business, which is our Europe manufacturing business, Q2 was stable. It wasn't loss-making, but it wasn't horribly profit-making either. And I would say it was in line within middling performance that we have had for the last couple of years where some quarters have been worse, but a few quarters have been better than this in the sense that it's low profitability but stable. I think that's our current outlook as well. The order book that the orders we are seeing show that, okay, it may not lose money, but it's not making a lot of money either, which is not where we want to be. I would say our Indonesia business, at least, has a much bigger pipeline, which -- pipeline of opportunities, which we need to convert and then to win. In terms of loss-making units, I would say these 2 are our biggest concerns. In U.S., which is where our chemicals business exports and our cooling business also has a fair amount of presence, we have seen a fair amount of strength to the point that if we have to compare to a historical average from 2 years ago, we are almost 50% higher in our business out there, which is good. In terms of, Rajendran, loss-making units, is there anything else you would want to add?
Currently, PTTI.
PTTI, yes. So in the Indonesia business, I think which we have already talked about. Okay. And Danstoker, which is close to, I mean if it's not -- it's profitable, but at close to the 0 line, yes, but profitable. Okay. In terms of your question around hydrogen, I think hydrogen will -- and starting to do or working towards new energy takes a big portion of our leadership's timing. And I would go and say that, as Thermax, we have not invested for a bit now in terms of, if you take a look at our treasury, it has continued to add but not subtract. I think over the next 1 year, we will have to make moves in investing this money to -- in some ways, possibly many ways as well. And some of those waste will definitely be related to hydrogen. In what we are doing currently, I think, our exposure would be on few of our areas. So on the -- where we generate hydrogen, whether you generate hydrogen from biomass or from BioCNG, et cetera, we already have capabilities. Historically, we have worked on some of India's best efforts on fuel cells, et cetera. So we understand the technology. We also understand that where we are is not good enough. We will have to do partnerships. We will have to look at these spaces. And then in terms of electricity, which becomes the basis of hydrogen. Some of the most that we are making in solar and other places also connects. So I think just hold on to that space. And as we have more to share over the next 1 year, we will come back and share. I think for now, I can share that we have quite a bit of focus on this whole space.
Okay. Sir, with regard to chemical business, how would have been the volume growth because the crude has seen -- crude and styrene have seen a very significant escalation. So if you can describe about like-to-like on volume growth, that would be great, sir, with regard to chemical.
Some portions we have exposure to styrene and crude. In other portions, we do not as much here because we provide 4 kinds of chemicals, 2 of which are our biggest as our essence, where we have quite a bit of exposure to styrene and our water treatment chemicals, where we have lesser exposure to styrene. And overall, we have had volume growth in both of those. But I would say, I think our volume growth may be closer to the low-teens number. But I think what we are seeing, as we start to expand our commercial presence, is that the demand is there. We are limited right now by getting our new plant to be up and running to the expectations that we have. Yes, so our capacity of our new plant is somewhat limiting our ability to hit some of the higher gears.
Sir, last question, if I may.
You've already had 4 questions. So we give time to everyone. We'll come back to your questions later on.
[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Congratulations to the team of Thermax for an excellent performance. So I have 2 questions. So the first one is when we speak to the global industrial companies, there is a -- there are 3 common threats. One, China slowing; second, input inflation; and third, is the supply chain wherein freight cost have gone out of [ cycling ], they are questioning the underlying business case of global sourcing or exports. How are these really impacting Thermax?
The first one is net neutral to Thermax. I think the India story right now is strong. I particularly don't see too much impact of China plus 1 either on businesses. It's possible there is a secondary and a tertiary impact. I'm not seeing any primary impact for sure. On the second and third, both of those are affecting our business quite severely. In terms of commodity price increases, I think INR 15 crores to INR 20 crores is that impact on Q2, which is quite high and Q3 will also be impacted to a similar number, maybe even higher very clearly, because the freight has affected our Chemicals business quite a bit. Not only have the freight rates gone up, but we could not ship quite a few of our containers. And many of those containers were high-priced containers. As an example, I think my team has shared with me like in our production from Maharashtra where our warehouse is, if it took us $6,000 for a container to get to the U.S., the number now is more than 2x that much. So we are passing some of those costs to our customers. I think we have not seen any slowness in demand, which means to your point that customers are looking for supply chains locally. And some of the products that we have, it takes years to build that capability. So it's not like customers have alternate supplies. And so we have to be able to find a way through. If anything, many of those customers are asking for faster deliveries and -- but of course, they're not willing to pay for higher freight, et cetera, which is something you're continuously pushing back on. So I would say from an impact perspective, quite high. I started my talk by saying that you would rather take this scenario where you have strong demand and you have to manage commodity price increases effectively as opposed to a situation where there's no demand and you are seeing inflation. So we don't have [ taxation ]. We have inflation but not [ calculation ].
The second question is, we have a large pool of cash of over INR 2,000 crores. And there are some niche businesses that we have developed and grown, like the chillers plant and we also did price on this tax front.
Could you repeat that? We have invested in some niche areas, which niche areas, if you were -- I didn't get those words.
So [ chillers ], as an example, we did invest in this team's craft company earlier. So are we looking at some of these niche areas? And are you open to inorganic growth for use of cash? Or what is the capital allocation strategy for Thermax?
I think as a Board, that's the very question that we are going through right now. So that answer is something where we are getting firmer on what that will look like. I would suffice to say that there will be new areas where we will invest in. And we look at some of these areas, and we are -- we find value into the stories that we have to sell and long-term connect with what we build and what India needs to do around climate change. So that's the theme. I would say the investment in a new plant in -- for cooling was not an investment for growth specifically. It was an investment to manage our cost side effectively, it was an investment in productivity. To me, that's more of a base business management which is something that we have done effectively. Beyond our base businesses, I do think there will be areas we will be coming and investing in. One of those areas will be continued investment in energy solutions where we are doing OpEx models. Yes. So our biomass-based solutions, our solar and increasingly storage-based solutions, this is an area where we think we will invest money. Then some of these new energy areas, which we talked about quite a bit. As we find the right partnerships, those are areas which Thermax will look to enter into. Beyond that, if there are opportunities on inorganic deal play in specific areas, we will go for it. Yes, but we are not looking for the Danstoker or the kinds of acquisitions that we did in the past, the kinds of inorganic plays we are looking for are very, very targeted and very specific.
The next question is from the line of Ankur Sharma from HDFC Standard Life.
My first question was on the export market. So if you could talk about the opportunities in the Middle East, Africa, Lat Am, now that we have GRMs also kind of shooting up and of course, oil prices also being fairly high. So are you seeing new refineries, at least, coming up in the pipeline over the next few quarters?
No, we are not seeing any major investments in new refineries. We have carry forward of older projects, which are continuing. But if you had to think about Dangote or those kinds of projects, nothing new on these. The overall pipeline on the international side for a lot of the kinds of applications that I talked about previously itself: biomass, wastage recovery, continued water-related desalination, variety of such applications which are not mega, mega projects, is reasonably good. I think it is better than what it was for the last couple of quarters where, as a business, I would say we have not done as well internationally as we are doing in India. But now the international pipeline is also improving, I would say.
Okay. And then on your domestic side, you can talk about refining metals -- hello?
Sorry, go ahead.
So on the domestic side, you did talk about refining and metals were doing well. So there was a lot of announcements from a lot of the steel majors in Q1 about expansion plans, but I think much more seen after that. So are you finally seeing some inquiries come out, some finalizations happening? Or do you believe still more of a second half or maybe FY '23 kind of -- where things actually get finalized on the metal, steel side?
I would say second half is possible and next year is possible. Just like you, we have seen those announcements. We've seen inquiries coming in. On the new plants, I don't see imminent finalizations in the next 90 days happening. But there are inquiries which are -- which is why I said, even the inquiry pipeline overall is strong. Right now, which we have quite a few orders which we have shared, they are coming primarily from brownfield opportunities relating to wastage recovery, in particular, yes, which is a strong bid. But many of the customers that I talk to do and seem to be serious about their capital expansions as well. And I do expect that at the end of this financial year and next year -- early part of next year, some of these will come to conclusion as well.
And just a last question on the FGD side, the margins, of course, on the enviro business being a little soft on this quarter. So specifically on FGD, what is the current order book, which we have here -- the 2 large orders we had won some time back? So what is the current order book? By when do you looking at completion? And what kind of margins do you expect there, given the RM inflation?
So I think in the second half of this year, we do expect FGD orders to close. Some of them, we have bid some time ago, and they're coming, which is -- I think the delays have been in some part because of price increases needed on some of these projects. But I do think FGD projects will come in the second half of this year. And there should be better profitability even with some of the moves than what we have had in the past. What we have had in the past was also in some parts, our improved understanding of the market, our improved capability and also, I think that whole China risk relating to -- can we source from China, can we not, some of those questions are all addressed. I think we will do better, but not -- the commodity price increases of the recent past have reduced those expectations slightly. Yes. So previously, we have set a bar, which for anything we touch in FGD to be much higher, we put it based on those much higher expectations. But as some of those orders are coming for conclusion and discussions because they're all relating to the government, those numbers have come down. But in some cases, there is a price escalation clause, which is available in the project itself. So the whole FGD pricing bit is slightly complicated. It's a longer discussion. And if anyone on the analyst team on a future question wants to just talk about FGD, I'm happy to explain the margins right now. What are the moving parts? What is in contingency, our closure times, I'll be happy to share more details as we see it here because that was a big number that affected our numbers negatively this quarter.
The next question is from the line of Amit Mahawar from Edelweiss.
Congratulations on these great set of results. It's that our market share in the first half would have gone up by driving the revenue high intake. I have 2 quick questions. First is how wrong am I when I say that the bulk of H1 order reflects a strong pent-up in industrial, both in export markets as in track and domestic? If you can assign a number to that, that roughly around 10% to 20% might be pent up or it will be a sustainable number?
So if I may answer, exactly, yes. So I think it is more than just pent-up demand, which is why I started by saying that we have found another gear. Whether this gear lasts or not remains to be seen, but we still see a healthy inquiry because if you take a look last 3 quarters now, yes, because Q1 of last year was a complete wash. Q2, the recovery started to show up. Q3 of last year, we started to say that, okay, maybe we are seeing elements of a V-shaped recovery on the base business because we have what is our channel business, where we work with 80-plus channels across country, across segments. And the channel business is a good proxy for what kind of strength we are seeing across markets. So the channel business recovered Q3 of last year itself. Q4, it got a little better. But by end of Q4, the second wave impact was showing, which is why last quarter, I said, look, we have had a great start to the quarter, but I'm a little concerned in how the next month will go. But then Q2, the second wave subsided, and we saw strength. So now we have 3 quarters in a row where our channel business has done better and better to the point that our last quarter's number on our channel business were our highest ever. On top of Q4, which was also our highest ever. So that tells me that you are better than just a pent-up demand. I do agree with you that some of these larger [ apex ] projects, which can move any which way, where there are a lot of price discussions here. A lot of them are based on budgets, which are completely unrealistic in today's times. So many of those customers are relooking at their budgets. Many of them may choose to sit back, especially with all the credit -- with the tapering affecting credit a little bit and inflation starting to potentially slow down demand, it is possible. But as I said right now, here and now, I would say India is doing better than V-shaped recovery, and it is more than pent-up demand.
Very helpful. Second and last question is more internal to Thermax. So since you joined, we've spoken about a lot of new concepts and strategies, modular approach to product. We saw a whole host of products that you've launched: atoM , , et cetera. It seems Thermax is far more diversified, that's good -- might be bad. You can help us understand because there is a number of variables that you have to manage. If you can give us clarity on how do you see this diversification going ahead, maybe 4, 5 years down the line because ultimately, whatever -- when you expand your TAM, whether the markets would use these specifications, this calculation will be critical for stakeholders. So how do you look at that? That's my final question.
I don't see a concern at all on that part. Yes, diversification within the energy space is something and Thermax has to embrace and embrace -- not only embrace, has to lead. Thermax's history has been on understanding our customers' energy needs well, and we -- that was the genesis of Thermax's growth for several decades. In the last few years, it slowed down, partly because India's CapEx cycle slowed down. Also, Thermax got too married to those big projects, whereas our story much deeper, so much more relevant beyond that. Yes. So it is something that we embrace because it's completely relating to addressing customers' energy needs, especially energy transition-related needs. And that's our focus. Yes. And I think if we continue to work this part, focus, invest significantly on services, invest significantly on products, invest on our build-own-operate models, chemicals, lot of these are also capital cycle proof. We have to go a long way in showing that we have moved our business in that direction. And then to add a lot of new energy elements, which will be needed in the future. Yes, the easiest example I can give you is that the last 300 years of energy was driven by less than 10 primary elements. You had generators, you had turbines, you had pumps. You had very, very small set of products, boilers, et cetera, that drove pretty much all of energy transformation, energy usage. The next 10 to 20 years, we'll see 2 to 3x new sets of things that will start to come in. Yes, renewables from solar when they've already come in, a lot more stuff will come in. And Thermax has to get into some of these newer spaces aggressively. How we do that, whether we find right partnerships, opportunities, all of that remains to be seen. Do I worry about it from a diversification point of view? Absolutely not. Our focus is clean water, clean air, clean energy. Within that ambit, there should be a lot of areas of diversification.
The next question is from the line of Aditya Mongia from Kotak Securities.
Congratulations to the entire team for a complete set of results. A question that I had was more related to the recent COP26 and your views from a business perspective for Thermax?
I think your audio is not clearly audible.
Mr. Aditya, your audio is not clearly audible. May I please request you to use the handset mode while speaking.
Actually, I am on the handset. Am I audible to you right now?
Yes, sir. Please go ahead.
Ashish, the question was more related to the recent COP26 and how let's say, that 2030 targets appear to you from a business perspective. And I also wanted you to focus on this issue of emission reduction and thus emission monitoring. And whether it creates the opportunities because customers then have to start complying.
On the first part, the concern would be on actions on the ground. Yes, because stock is one part and actions are another. As actions happen, it should be a huge positive for Thermax. Whether actions will happen, especially in this environment where we are seeing inflation already, the world has to come to a place where this is not something that you look at as something that we are forced to do, but it's something that we are wanting to do. And in terms of wanting to do, currently on the ground, there is a lot of thought, action is happening. I will look at the glass half full because you do expect many companies, including Thermax, how we look at our own energy mix. We are going and executing projects that may have a longer payback. But if it's green, you have to do that. My concern is that if everybody expects that energy will be cheaper and will be green and completely sustainable, that will not happen. You cannot have hydrogen coming in at the same price at which you produce coal today -- coal-based energy. I think we will have to look at saying we have to do this and not be forced into doing this 10 years from now. So I think I'll put this as one of the question marks on how India will evolve. From a Thermax point of view, we are getting and we have to get ready for a world where companies want to do this and want to do this now. So that is a question on COP26. I think India's targets of 2070 is a good one, more important and relevant is to cut down our energy intensity and cut down how much electricity comes from coal by 2030. So -- but dramatically, I think those are a lot bigger and more important targets in my mind, which will -- which should help Thermax quite a bit. The portion that will not help Thermax is the second part of your discussion on monitoring itself. For example, monitoring in emissions, our entire FGD business is driven around emissions management. I do not think that business has a horizon beyond 5 to 7 years. Yes, I would not even go 10 years. I think for the next 3, 5 years, clearly there will be projects. It will be quite active. But beyond that 5 to 7 years, they will not be projects because once you get down to a particular emission levels. Most of these plants will not look to invest any further, and I don't expect too many new plants to come up on the coal side beyond this 5-year horizon. Emission monitoring is not as big business for Thermax, and I don't think monitoring by itself will be as big a business. The management and reducing emissions is a big business for Thermax -- but -- and the FGD portion of that, I think, has a shorter shelf life. But I think we are not worried about that yet. It's right for the world. It's absolutely something that we support. We just need to find newer areas of growth fast enough. And FGD is not something we have made tremendous amount of money in the past. So it's not something that we will look back and say, wow, a big portion of Thermax is at risk.
Got it. Let me just clarify the second part. So FGD is one part. Okay. I would want to believe that there probably is more that you would be offering as part of your environmental solutions business to curb emissions across power or beyond power?
Yes.
Yes. So the question was that actually from the sense that I get, the regulations are all in place to kind of monitor and curb. I understand that's not your business. But obviously, you do provide the solution that brings this now. And I want to get a sense from you that if, let's say -- is this a low-hanging fruit where in the regulations start getting complied to by your end customers beyond power, and that sees an uptick in your environmental business?
Not just environment, it actually affects our energy business as well, both of them. Yes. So in the examples, you would have seen that we shared an example of NRSW, it is nonrecoverable solid waste, which is secondary waste at paper recycling plants where it's plastic, waste paper, waste paper, binding material, all of which a paper plant does not use is disposed of to cement plants or to burn in very, very unhygienic ways, which hurts the environment. So as these plants have to comply in how they dispose this of -- how it is burned. We are seeing opportunities to burn them better, which is not burn them in a very managed way so that there is no emissions that go into environment. So it not only helps us on the emission side. More importantly, it actually helps us on the energy side because we are able to do some of these complex applications better than others. Similar opportunities exist in municipal solid waste, many other places as well. So it's not just environment, it's actually energy as well.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
Two questions from my side. Firstly, on the Environment segment, when we see the quarterly ordering run rate, it usually is to hover around the INR 200 crores level, say, plus minus 10%. And we've seen a significant step-up to between INR 250 crores to INR 300 crores for the past 2 quarters. So if you could highlight the key drivers of this major change that we have seen and also on the sustainability of the current run rate if it can sustain which other areas which are ordering? So that's the first question. And second question is on the Chemicals segment. Of course, we've seen margins have come off and you are highlighted by those margins are off. But if you could give us more color in terms of what is the breakup of sales between those 4 main areas. I remember, in exchange rates used to be 50%, 55% of sales. but some of the comments in the PPT highlight, there was significantly higher growth in construction chemicals and other segments. So if you could broadly give us a mix over there.
Okay. So your -- yes. I'll take your question first and then go to the second. Yes. I think, yes, the run rate has gone up in part of the -- what is called is our environment business is our water business and our Environment Solutions business around emissions management and controlling particulate and gaseous matters. Both of these, from a base business perspective, are extremely healthy. Connecting back to the original comment that I made that overall, I think our base business is doing better. These are also areas where some of our efforts in coming up with newer products on the water side, focusing more on basic building capabilities around better services, all of that are starting to show effort. So I would say there is an impact to that on the overall economic environment. There is an impact to that of Thermax's own internal efforts. I hope at least that Thermax's internal efforts are sustainable. Overall, I think that INR 200 crore number should be sustainable at least in the near term, I would say. On top of this number, of course, are the FGD projects that come and go, which also, I think, as I look at the year, we should -- we should look at closing at least one FGD order, maybe more as well. But that's how I would look at it. The base business on water and enviro has improved and is also that base business has become better profitability than what it was previously as well. So which is also something that is good. It's hidden behind a much bigger top line on FGD, which is at close to 0% margins. But overall, I think the base business even on that side has improved. On chemicals, there are multiple things that hurt us. Yes, some that were not in our control, some that we should have done better or not because of lack of effort, but these are just complex problems to solve. So if I take them in order: first, there was a mix change, which is our specialty chemicals mix this quarter was less than our average and particularly less than same period last year where our specialty chemicals mix was higher than average. So that had a big impact on profitability overall. We had 2 secondary impacts, first was driven by our inability to ramp up production at our manufacturing plant because if we would have ramped up production, some of the variable portions, because you have the same base plan, would have been a lot more profitable from an EBITDA perspective and an EBIT perspective as well. We were not able to. Yes, so our plant is still at the -- was for an average the new capacity. We were barely able to get 20%, 25% of our capacity whereas our expectation was that by last quarter, we should have gotten to 50% plus that was available. So we are seeing demand, but we have not been able to improve our production from our new plant to the extent that we would like. So that has been disappointing. The third part, which was not entirely in our control was that shipping of containers was a big issue to the point that we had quite a bit of inventory, which was sitting at the ports that we: a, could not ship; or b, some of it, we chose not to ship because the freight rates were so high, especially at the end of the quarter, where if we waited even a week or 10 days and moved into the new quarter, we could save crores of rupees on shipping itself. So we chose not to -- we chose to delay recognizing the revenue and chose to move it to the next quarter as opposed to taking that hit in shipping. But even on the stuff that we shipped in the quarter, we had to take -- overall, bit of much bigger impact on shipping. So all 3 of these things together affected chemicals. For this quarter, what we should see is a little bit of a positive impact from all of those containers that were not shipped starting to provide. Second thing, some of our price increases that we have done in chemicals and stepping back from taking any freight risk, that should start to show impact. Third is our production from our chemical plants should start to get better. We -- October was a better month. It wasn't where we want to be, but was a better month in our ability to deliver; and fourth should be the specialty chemicals should also improve. So we should see the impact of all of these, but still, crude prices continue to go in. So you have got commodity pressures, but we have got 4 moves in the right direction and 1 in the negative direction. The net-net should be a closer getting back to normalcy, at least, in our chemicals business with a higher top line. That is the expectation for our chemicals business, at least internally, remains to be seen what the next 1.5 months actually delivers. So that's, I think, in as much gory details. Finally, I think we had a big ERP implementation as well in our chemicals to get it to a much better ERP so that we are able to do a lot more interesting things in the future just from a capability to supply, give visibility to our customers. So that implementation have been successfully and has been closed in the quarter itself, which was very good. I think -- so that's in as much detail as I can share on the Chemicals business. I don't think our specialty chemicals mix is 50%, and I don't think we have ever shared that number in complete detail. And we would like to keep that to ourselves for the near future. As we grow that business significantly, we can come back. But the 2 biggest portions of our business, which is our resins business and our Performance Chemicals, which is the water treatment and other treatment chemicals, those 2 continue to be the biggest share of our overall chemicals.
The next question is from the line of Renu Baid from IIFL.
Congratulations for good performance. I have 3 questions. The first is, can you share some details in terms of how large is the water portfolio of Thermax today and with new and modular products being launched and client focus on ESG, how do we expect this business portfolio to ramp up in the next 3 to 4 years? So if you can share some numbers and insights, that would be helpful. Second question is on the FGD side. Any status update in terms of project execution? And how are the margins faring in this project given these are fixed price projects which keep inflationary impact on steel and construction costs. So are they still profitable? Or these are turning to be relatively loss-making orders for us? And largely -- lastly, also give some updates in terms of the recently developed MVR solutions that you highlighted in the presentation. What type of industries can these solutions be implemented? And what is the kind of addressable opportunity here?
Renu, 3 questions, and these will be the last questions then. First, I would say to you and to the larger analyst community as well that most of you have complimented and even our share price went up. I was actually surprised by how much it went up because if I go and compare this back to a 2-year ago number, where we had revenues that were similar, our bottom line is also similar. So in some ways, we have gone back to where we were 18 months ago, better on the order side, but on the revenue and profitability side -- there to where we were 18 months ago. I think what we need to now show is can we continue to get better from this. I think that -- that's the message. But thank you for compliments overall. First, I think in terms of -- I've shared with you the general direction, yes? If you will wait another few quarters, at one -- at some right time, we can come and share what are we going to and how are we looking at our entire business from a ESG, climate chain sustainability because it's -- part of it is what we can do with our existing portfolio. Part of it is what are new things we can do. Also share with you lot more detail on how some of those new bids are going, things like TOESL which is where we do build on operate where -- which are all 10-year contracts, completely green, biomass-based solutions where we manage entire clients for customers, those are businesses where if we previously were at INR 100 crores, in 1.5 years, that business backlog is now -- business order run rate is crossed INR 200 crores getting to INR 250 crores. And these are all 10-year contracts. So there is some good movements from some of those elements. We are investing in services quite a bit. So we'll come and share that because the numbers right now, we would like to, for competitive reasons, and also because we need to be sure we are delivering what we are seeing. We are delivering, I guess, more importantly. Give us some time and we can come back. Yes, I think my bit is that and our focus as a team and the direction from the Board is that should be our focus, not one-off big orders. That would be my first bit. On FGD, the answer is complex, and I'll share with you the complexity. The 2 big orders that we have right now are breakeven orders. They are not losing money. They're not making money. They are breakeven, which is very low single-digit numbers. We expect, not hope, but expect that it will not get any worse because majority of the ordering on these projects is complete.Both of these two -- both of these projects have got some opportunity for price escalation. One project has price escalation written it. The other project has an opportunity for invoking the force majeure clause very correctly because both of these projects were delayed. Because of matters which were not entirely in our control. And in cases, the government delayed them because of the China play and all that. And the commodity price increases happened during that period. We also have contingencies on these projects, which we have not yet recognized. And Thermax does not recognize contingency on the projects until minimum 2/3 of the project is completed because we see -- we do not know what more risks may come up. Both of these projects are right now, from an execution perspective, far away from that 66%. And in this financial year, we don't think they will reach 66%. So because we did not see an opportunity to show the good side of these projects, we have taken -- bitten the bullet and taken the cost impact of what we are seeing on these projects in this particular quarter. I expect that our teams will not come back with more negative news, but that is an expectation. It is not a guarantee. There is upside that exists on both of these projects, which will be a matter of intense working in negotiations with our customers because there is -- some of it is -- most of it is tough that was absolutely not in our control. So there are areas where we were executing the project for the first time, which where prices -- where there were things that happened which we did not account for, we need to take the hit, clearly. But there were many areas where we had absolutely nothing wrong to do where the customers have to support, yes? Because this is not something -- and in at least 1 of those 2 projects is a price escalation clause, but that price escalation clause is associated with us getting a time escalation clause. The time escalation clause is relating to COVID. So the first, the customer needs to approve the time escalation clause, when the time escalation clause gets approved, the price escalation cost gets approved. So they're all very, very complex. None of it will affect us this financial year. So we have just taken the cost impact, and we are moving on. So that's the second question. And in all of this, I've completely forgotten your third question, Renu.
It was on the MVR solutions, which you highlighted in the presentation for pump facility. So what are the type of industries that we can cater to and how would be the addressable market for these type of solutions?
Solutions market should continue to increase because MVR is -- as more and more people look to discharge water effectively and 0 liquid discharge becomes more and more relevant. And as we do 0 liquid discharge, you are looking for more energy-efficient solutions. And many such things, people will look for more and more MVR-related things. So the space will continue to improve. It will not become like 30% increase or any crazy numbers like that. It's not driven by 1 single change. It is driven by continued need for higher efficiency and continued stringency of regulations being followed. So I would expect this to do better than GDP and better than average capital markets. But it will not be crazy increase. But as an application set, we think it makes a lot of strength, a lot of importance for India long term as well. These are not very big applications here. They're not thousands of crores or big, big opportunities. But they're all very good incremental moves for Thermax and for the larger industry in the right direction.
So this overall stringence in the water offerings that we have for the industrial space and then these unclean water solutions that we have...
Completely. And they're all competitive spaces, but this improves our capability and our portfolio. Clearly. Agreed.
Thank you very much, everyone. Any closing comments, Rajendran, anything that we did not talk about.
Nothing, .
Okay. That's it. Thank you very much for following Thermax and your best wishes keep us moving in the right direction. So -- and your input and your thoughts...
Bhoomika Nair also would like to give her closing comments. Over to you, ma'am.
No, it's okay. Thank you so much for giving us the opportunity to host the call and all the participants and wishing you all the very best and for all the efforts that the team is taking.
Thank you very much. Thanks, everyone. Have a good day.
On behalf of DAM Capital Advisors Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.