Thermax Limited
NSE:THERMAX
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Thermax Limited
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Good morning, ladies and gentlemen, good day, and welcome to the Thermax Limited Q3 FY '21 Post Results Analyst Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Varun Ginodia from Ambit Capital. Thank you, and over to you, sir.
Thank you so much, Lizan, and good morning, everyone, and welcome to Thermax Limited 3Q FY '21 Earnings Call. We are pleased to welcome from the management, Mr. Ashish Bhandari, Managing Director and CEO; and Mr. Rajendran Arunachalam, Group CFO. In terms of flow of the call, Mr. Rajendran will go through the presentation briefly, and then we will open the floor to Q&A. Thank you so much. sir, over to you.
Yes, Rajendran here. Good morning to all of you on the call, and thanks, Varun. I'll briefly take you through the investor presentation that we have shared on our website. I hope you have access to it. So talking about our Q3 consolidated results, our revenue is more or less exactly the same as what we achieved in last year Q3, signaling that in terms of resumption of regular operations and the numbers being more or less the same as last year. Profitability is much better. We are 34% above on the regular profits before exceptional items. This is on the back of the cost control measures that we have initiated during this period, both on our material cost as well as our employee cost and other expenses that we have achieved this good profitability number. However, there are a few exceptional items during this quarter. We have taken certain diminution provisions for our investments in Indonesia as well as for our Danstoker Group in Europe. These were required on the back of the performance of these entities and with the outlook on their performance for the next couple of years and the accumulated losses that we had in these entities. So basis and a review of them, we have taken diminution provision. For the consolidated result, the impact is about INR 27.5 crore in net which is -- in fact, that we have disclosed in detail in the financials that have been shared in the stock exchange. Talking about order booking, our numbers are more or less the same as what we achieved in last year's Q3. Order balance remains at a smaller level as last year Q3. Our cash and bank balance has improved. Our focus on cash continues as evident in the last 2 quarters as well. Our cash balance is at currently INR 1,686 crore. So those are the key numbers of highlights which I wanted to share with you. The order book statement, we continue to have a good amount of order flow from refinery, food and beverage, metals, and other related sectors. The broad-based demand recovery is being seen across other industrial sectors as well. And that's leading to a positive flow on the order book trend as order book goes. We highlighted a few key orders that we have won and some important happenings in our energy, environment and chemical segments. I'm sure you would be able to go through that. And if you have any queries, we would be happy to answer them. Awards. We have won a few awards in our businesses. We're happy we have shared them across the presentation. From the order book perspective, we had one large order, which we had informed in the last quarter results as well. We have won a INR 350 crore (sic) [ INR 320 crore ] biorefinery order from a sole biorefinery customer, and that's helped us improve our order strength in energy segment. I think by and large, that's the key highlights that I would like to give with regards to results. On the last slide of the presentation, we have shared with you our current outlook. From an input cost perspective, we're currently feeling a bit of challenge on the commodity costs. As you're well aware of the steel price increase, that's affecting us in terms of the input cost increases. We're taking measures to control the impact of the same to our bottom line. Demand front. We definitely see that many of these sectors are now coming back with inquiries, and I think that's a positive thing for us. Market sentiment, we are, of course, aware of the Union budget which has definitely boosted the market sentiment in terms of the infrastructure build that is anticipated to happen. From a global perspective, we do, of course, see a bit of challenge still in some of the geographies that we are operating. We do see that the pandemic effect is fully not gone. We are just hoping that in the coming quarter, this should be under control, and we will see a better demand increase in the global geographies and locations where we're present as well. So that's all that I wanted to cover on this presentation. Over to you, Varun.
[Operator Instructions] The first question is from the line of Renjith Sivaram from ICICI Securities.
Congrats on the good set of numbers given the environment. Sir, if you can just give us some outlook and what's the status of our -- the performance of our overseas subsidiaries, Danstoker and the other subsidiaries, how are they placed? What's sort of outlook there?
I'll start with Danstoker first, and then we will talk about some of our other subsidiaries. I think Danstoker, you can see also from the hit that we took on our numbers this quarter has not performed to our expectations. We previously had indicated that the losses in the business are -- we think were somewhat manageable, but that was done with an expectation that the economy in Europe was slightly getting better after some of the next wave of lockdowns that have happened or also perhaps that we haven't potentially executed as well as we would like. Travel has been quite challenged. It's been not the easiest. Looking at all of that, Danstoker overall had a loss again this quarter. And looking at the loss, we took an accounting review of the entire asset. And then whatever was the goodwill on the books, all of that has been written down in this quarter. The -- if I go a little deeper on Danstoker specifically, Danstoker, as you know, has a plant in Denmark, has a plant in Poland. The couple of changes that are happening is one, that whole business used to do a fair bit of work on district heating in Europe. With the whole change in the energy environment in Europe, the district heating market has changed slightly. Some portions of that market, which is in the future, renewables will continue to be strong, biomass will continue to be strong, which is a strength for us. We're also adding capability for doing electric boilers out of Danstoker in a lot more meaningful way going forward. That said, though, the overall environment, like it's not like we are losing orders out there, yes, but our packages through whom we work normally, they too are not seeing the volume. The expectation is by end of this quarter in March, there has to be an uptick in demand because there have been quite a few projects that have been waiting to -- that have been announced that have been under discussion that are expected to continue. But until that happens and this hits our books, we don't know what the future looks like. So we decided to be conservative and take the hit. Our plan for Danstoker going forward is for it to be a better than a breakeven business. Yes, so that is the challenge that is in front of the operating team in India and locally in Denmark as well. So that's Danstoker. If we look at Southeast Asia, we have a plant in Indonesia, and we have the largest Southeast Asia business as well. Even that has underperformed to our expectations, but the challenge and the opportunity there is of a slightly different kind than Danstoker. Within Southeast Asia, the overall pipeline of opportunities that we have continues to be decent. There is a big move to biomass out there and fuel flexibility, both of which are our strengths. And we will get stronger and stronger with each passing quarter, and that is the expectation. So just like Danstoker, the expectation also for our PT TII, which is our Indonesia subsidiary, is not to be a drain on the business next year and to be breakeven. Of course, it depends on how well we execute and whether we are able to do this or not. But that is the internal plan that we have. Outside of these 2 markets, in most other parts, especially in the U.S. for chemicals, we are seeing fair amount of strength. We continue to grow, and the growth is quite profitable as well. Some of our other businesses like cooling, which used to do quite a bit in U.S. at one point of time, there is some amount of slowdown, but we expect that to pick up in the near future. If you take a look at our overall numbers, our international mix hasn't changed here. We continue to be in that same 30% to 40% range for international, and that is where we did this quarter as well, overall, including exports and local businesses, which is not a bad number, but we do think that number can be much, much more in the future.
The energy segment margins have been very healthy this quarter. So was there any advantage of a mix or something exceptional there? Or do you see this trend to continue? Overall outlook on the energy segment margins.
I think the mix was slightly better than previous quarters because we had one international order that was -- that came through partly this year, but the more driving -- more important driving factor ultimately was that our volume came up. And some of our base costs were still manageable and under control. So that as the volume came up with managed base costs, that affected all portions of our business correspondingly. So in that sense, I think it was a mix of 2 effects. Rajendran, I don't know if you would have anything else to add.
No, I think you provided the clarification.
[Operator Instructions] The next question is from the line of Susmit Patodia from Motilal Oswal AMC.
My first question is on the chemical business. Is there capacity constraint with respect to business because the top line is kind of stagnating at this level. So is there a capacity constraint, or is it just outreach to more customers? That's my first question.
I think you made a very pertinent observation. There is a capacity constraint. We had talked about how phase 1 of our plant was getting close to full. And our phase 2 of our Dahej plant, the capacity expansion had come into place. But we expected the stabilization to continue until quarter 1 of the new year. Here, we are working backwards to see if we can accelerate that schedule. But right now, we are limited more by supply than by demand. And it is in a business where quite a bit of it is driven by exports. Before we take an order, we have to be absolutely sure that we can deliver. So your observation is very, very pertinent and correct. Further, we also had some amount of styrene price fluctuation. Styrene went up quite a bit. And during that time, some of our price negotiations, et cetera, also affected slightly. But we were more limited by our ability to supply.
So this INR 450 crore after the expansion goes to -- I mean, can reach what revenues?
I think that is for all of us to work on. So it is not an easy question because as we start to increase the capacity, then once we assure the capacity is available, only then we can promise it to customers and grow. So we have a very strong demand pipeline. This is a very important area of growth for us. It will be very premature for us to say how much more it can grow. But our first focus has to be to increase the capacity and then very quickly start to fill that capacity. So the first challenge, which would be between now and the next time we come to talk to you, we have to be sure that our new capacity is up and running, truly up and running.
And my second question is just related to the budget, which is where they announced the national hydrogen mission. And Thermax is probably the first company in India to have done something towards this effect. So how -- I mean, if you can just explain this whole thing -- others might have been in, but if you can just explain what this means and how does that play into Thermax' global installments in the future?
We are all starting in that journey. So it's not like Thermax is in any particular advantage. We have a lot of products that fit in that larger scheme of hydrogen. But the hydrogen mission announcement is a very positive development. How that hydrogen mission works because it is just announced [indiscernible], how will it get spent? What projects will it do? What does it mean? Will it only be green hydrogen, which is renewable space? Will it include blue hydrogen, will it include carbon capture based hydrogen? So there are a lot of open questions which are still there. So it's too premature to state the direct impact on Thermax. For the country and for energy transition overall, it is a positive development and one that we strongly support.
The next question is from the line of Ankur from HDFC Life.
So first question is on the order pipeline. So while in your presentation, you've spoken about some kind of a recovery and momentum in orders. If you could talk about a little bit more detail in some of the larger segments, steel, cement, refining, FGD, your broader outlook over the next couple of quarters, how do you see orders kind of playing out here in the domestic market? And then possibly, if any specific projects also you could highlight?
Unfortunately, I won't be able to highlight any projects. I'll be right upfront and clear about that. In terms of overall recovery, I would say, decent. I would not say it is spectacular in the sense that it is not like our order pipeline is 2x of what it was last year. It is slightly more than last year, which is a good thing, a good place to be. And the recovery is based here. We are seeing a good amount of projects in cement, in steel, in distilleries, refining, on top of good strength in food and pharma, all of that. One good thing to -- which I think we tried to indicate through our presentation as well. If you take a look at our large boilers business, the nearly INR 400 crore worth of orders that were won in there, all of them were for applications that were green. You have a variety of customers. More than 10 customers with significant orders, actually nearly 15. all of them green, yes. So wastage recovery in cement, very, very -- application, which is -- which multiple customers are deploying right now. And even for many of the new steel -- cement plants that are being announced, this will continue to be in place. Then we had spent wash and distilleries. We had a lot of success out there. The Assam Bio Refinery, which is a bamboo refinery, converting bamboo into bioethanol, we had success out there. Even in Pemex in Mexico, the win we had in the last quarter was for wastage recovery. So wastage recovery, spent wash, agro-based products. So they're seeing continued strength, and that strength is in multiple segments as well. We had a very big win for our build-own-operate model as well for a major mining company in India, where we will be converting what would have been done using fuel oil and natural gas, a plant which will use biomass and convert that biomass into power and steel, and we are doing that on a build-own-operate model. So that is like a 10-year long contract, of which we only announced the first year worth of orders. But all of these are long-term contracts that are very interesting and very different from what we would do even a year ago, I would say. So that is all positive as well. But that said, the overall pipeline is not like dramatically bigger than last year. It is somewhat bigger than last year. And I would say there is, in that sense, expectation that the budget will kick start a new round of infrastructure spending, and we will gain from that infrastructure spending as those projects trickle down to the Thermax level.
Actually, sir, what I also would love to hear is your outlook on the larger size orders worth typical INR 400 crore, INR 500-odd crore and higher. Because we really need to win some of those larger ones to start growing our order book again and therefore, grow our top line and so on, right? So is that something also you're seeing a recovery? Or is it more of your base orders which is leading to this higher pipeline to you?
There are some reasonable big orders also that are under opportunities that are under discussion. We will be very clear, though, that we will not do anything silly, yes. And as an example, I would say that a lot of refinery projects that got budgeted in last September -- August, September or even before, they are coming for finalization now. We would be completely clear, which I had mentioned last time as well, related with steel prices, everything has gone up. You can see we have been a very conservative company from a cash flow perspective, from focusing on our fundamentals, and that will not change. We will not do silly -- anything silly to just bring top line and if we have to pass on orders to do that we are perfectly fine doing small, small, small orders and filling our factories. Our 1,500-plus order book is not -- while it does not have a single INR 500 crore order or a INR 400 crore order, we are -- it is something that I think is a testament to our capability to play and win across multiple segments. Specific to FGDs, there is a pipeline of FGD projects, which are now coming to bear. The competitiveness on those remains to be seen. Yes, all our players in the industry talk about how we need to improve our assets, but it doesn't seem like we are doing that. But Thermax is very clear. We will not play if the profitability or the cash flows are not right.
And just a follow-up on the FGD. Sir, the orders we got last year, I think in Q2 on the FGDs and there was some delay, I remember you mentioned on the last call, in terms of execution. So do we now start seeing that kind of come into top line, maybe in the second half or into...
Both of these have now started getting executed again, and they are in full execution now. But it does mean that the revenue cycle on those will shift from financial year '21 and financial year '22 to a mix of '22 and '23, yes. So there is a shift in those projects of about 6 months based on all the delays because of COVID and also because they had an element of China sourcing, which we needed clarity on. Both the projects now are in full execution again with several hundred people mobilized on-site, full progress going on. But the project delay that happened, we will not be able to catch that up.
The next question is from the line of Renu Baid from IIFL.
My first question is on the water segment. As we see a lot of activity in government significantly increasing the thrust on clean water, both in urban as well as for drinking water streams. And Thermax also has come up with new product launches in water treatment segment. So for our water portfolio, are we now looking to expand the end market opportunities away from this industrial segment-driven government sector customers? Or how would be our strategy to expand and grow the water and leverage the opportunities coming up in the domestic market?
I think I -- we have high expectations of our water business and continued growth. But our primary focus will continue to be business-to-business. We will not do municipality or government projects. Of course, I can't say anything with finality. A lot will depend on the quality of projects that come up. But our historic, kind of the look of these projects in terms of profitability, in terms of how they get executed has not been the best. So we will not get into some of these segments. But I can't say that for sure. It is not a big focus area. A big focus area continues to be B2B where we see enough of a pipeline and enough strength with our current set of products. The whole urban move, the industry economs getting tougher. All of that will drive our base. Municipality and government projects specifically, we will look on a case-by-case basis only.
And in this context, how has been the response for a package product like atoM that we have worked up in the last quarter of 2?
So I think in next year, we will be able to share more potential details. But so far, we are happy with the launch of atoM and the inquiry book and how -- see, because in many of these cases in sewage treatment plants and all, it is the consultants who define the specifications. Based on the specifications, the product goes into the design of the -- of a particular project. So the cycle is not immediate. These are not -- while they're products, they're not like you build them today and tomorrow, everybody starts to buy them. But we are very encouraged by the overall pipeline development and the way many of our consultants in the tertiary markets have picked up. And the quoting volume on atoM is something that we like as well. But you will have to wait a little bit before we can come back and say, provide specifics, if we ever will be able to -- yes, because of the competitive nature, we will not -- possibly most likely, we will never be able to share specific numbers. But at a general time, we will share next time.
Sir, secondly, on the onsite energy solutions portfolio, last quarter, we did receive a good order from the FMCG space. So how are we seeing this business scale up and internally what will be the plans to ramp up this portfolio from both domestic as well as international markets? And do we see the margins in energy segment also improving because of growing contribution from this business?
Actually -- so 2 separate questions. First, I think on this onsite energy. I think it is a growth area for us. We -- the mining example that I had shared last time is also in this particular segment. And we see opportunities for growth. We have ambitious targets. I would not venture to share those targets, but this is an area of growth for us. The profitability of the energy segment, while this is a very profitable or a reasonably profitable area for us is not the primary driver. Yet the improvement in profitability is, first and foremost, driven by the volume that we had and also a positive mix in this quarter.
And possibly just to add, would it also be attributable to [indiscernible] margin orders? That's my last question.
Sorry, I did not catch that question.
As in the energy segment, last 12, 18 months, you were executing certain orders on the captive side and large projects on the margins side significantly filled out. So probably completion of those orders or near completion has also helped to improve the overall mix for us. Could that be the reason?
The mix was overall better, as I said. I don't think it was one specific project on the negative side that got closed in the previous quarter that is helping overall. But I think mix, in this particular quarter, was slightly on the positive side where one international order where we had slightly higher margins, had a bigger portion in this quarter. But overall, I think, as I said, it was driven by a combination of 2 factors. And the overall improvement in volume -- base volume was the single biggest driver.
The next questions is from the line of Kunal Sheth from B&K Securities.
I would love to hear your comments on what would be the key group area of growth in the next 5 years that you will be most excited about? And which could be meaningful contributors to the revenue over the next 5 years? That was my first question.
Okay, I think a good question. I would say -- I think I tried to share some light into this already here. The nature of energy is changing dramatically outside of India and -- even reasonably to within India and a trend that will continue to accelerate and gain momentum in future quarters. I think this whole change carries some threats to Thermax while our number is reducing continuously. We do have exposure to coal-based captive power plants and the like. While we have 0 exposure to any large-scale utility side quotes. On the captive side, we do have an exposure. I do think over the coming decade, even the refinery and oil and gas projects will change in their nature and in their overall volume. On the flip side, the opportunity that Thermax has as a company, which is clean water, clean air, clean energy company is unprecedented. There is tremendous capability that we have in all 3 of these areas that are themes not just for now, but for the coming decades. And those are themes that Thermax can leverage effectively if we do our job well. So in that sense, we have a whole variety of products, solutions, capabilities, all of which that has to come to bear and create new sources of revenue for us. Couple of those we talked about, yes, like the build-own-operate model as onsite energy that we talked about, is a fully renewable green-based model. And Thermax is one of the biggest players, if not the biggest players in biomass and associated spaces on bioCNG and all that going forward as well. Our capability in managing fuels of various different kinds in our heating business, fuel flexibility of all scale, sizes gives us a lot of capability as well. That said, in some of the more emerging areas, especially in terms of water, in terms of clean air, we need significant product enhancement capabilities. Even on our heating business, the whole electrification will drive changes. So how do we introduce new products to take advantage of all of those. There was a discussion on hydrogen, how do we bring that into in. So that is part of what the team and I, we need to work on and deliver. A lot of it is competitive in nature, so we can't really share. Both of it is, you can see applications that we are bringing to the market even now where we are having success. It's for all of us to see. So I would say, look, it's an environment where there will be a risk and an environment where there will be a lot of opportunity. So it will come down to execution. But the -- clearly, there is tremendous amount of opportunity, both India and abroad.
But do you think that all of these opportunities would basically turn out to be a meaningful revenue source in the next 5 years to compensate for the slowdown in traditional businesses?
I think the possibility exists clearly. I mean, you're taking a look also at chemicals business as an example, the strength that we have and strength that we can double down and continue to grow. And even on the energy side, there's no shortage of new things that can be done. And those, if done well, can compensate for any loss of revenue you may have where traditional businesses will change. Yes, it will come down to execution.
And my second question is pertained to the margins in the current quarter. So the gross margin improvement that we saw, basically, do we think it's sustainable? Can we assume this as a steady state margin? Or there was an impact of mix and therefore, it cannot be taken as long term?
So there are, I think, 3 parts to the answer, yes. The one that we cannot control is the movement in commodity prices, which can make quite a bit of difference to our numbers. So we will continue to be cautious on the long-term look because commodity prices are going up. Even in on our chemicals business this quarter, we had a major spike and then it came down on styrene. So for about a month, we were stranding to see how do we continue to be profitable, but the impact of steel prices will be lot more severe on our business, and we are looking to manage it, mitigate it, but a lot will depend on how like the renegotiations with customers, our ability to increase prices, all of that comes to bear. The second part of the puzzle is volume. Yes, because if our volumes are reasonably high, the productivity impact that comes with those volumes. That I hope with the volume nature that we have right now, we can continue to sustain. But again, the volume also depends on the step 1, whether the pricing continues to be something we can manage. Yes, if the market continues to be very competitive, which means if we don't reduce prices, we don't win projects, and that will have a secondary impact on volume as well. The third impact is on our base cost and our cost structure. I do think we have cut down to the bone there. And in the coming quarters, we will have to spend as well because there are a lot of areas of growth where if we want to participate in those growth areas in the future, we will have to spend. So I don't think -- and then as you know, we had been through salary cuts, et cetera, which we have now put back. I don't think on the base cost side, we would be cutting any further. It will only go up going forward with a very, very careful look. But it will go up going forward. Rajendran, anything you want to add?
No, Ashish, I think you've provided a clear direction. I think essentially employee costs and some of the G&A expenses, we, of course, do see things moving up given that these are some extraordinary times. There is a lot of focus on control that has been done. So that, I think, is what we have to remember.
The next question is from the line of [indiscernible] from PGIM.
My first question was we are seeing more traction in terms of CapEx from chemical, pharma and all these sectors. Should not it lead to higher growth in our chemical business eventually over a longer period of time? And one more thing, we have even equipment for cleaning water and all those things. Can we have a business model where we get more extended warranty or validity to customers if we -- if they use our own customers? Is there a business model which can evolve over a period of time? So some of your thoughts on this question.
Let me answer your first question. The second question, I could not understand entirely. But specifically to the chemicals industry, I would say the overall chemicals industry in India is going through a very positive cycle, which is expected based on the reports that you read to -- for some period of time, yes. So in that sense, we will have -- we will gain as we provide energy and environment solutions to those industries. So when they set up a new chemical plant, they need power, they need to clean the air that the plant emits out from the flue gas and other emissions that happen, then you need water treatment plants, input and output, all of those. Those are all areas which from a secondary demand perspective, we will gain. Our chemical business is not one that serves chemical industry specifically. A small portion comes from chemical industries. But our chemical business is -- does performance chemicals and specialty resins, which have applicability in a variety of different industries and including fair bit of exports. So that is the first question -- of the first part of the question that you asked. The second part, I could not understand your question entirely on long-term warranties in the water segment. If you could please explain that slightly, I could...
Yes, so my question was, we provide capital goods also or for cleaning water systems and all those things, 0 liquid discharge and all those things, where again a lot of chemicals get used to, okay? So can we have an extended warranty for our systems if the customer uses our own products, a type of binding with the customer, which we see in many other I would say, capital goods companies, if you use their own AMC, the warranties are extended or life of the product would be higher. So something of that sort which gives more sales for our chemical businesses. Is that a business model which can evolve products on the chemical side also?
So I think it's a very good question. I think without sharing too much competitive information again, what you are talking about, not exactly the way you speak, but in a slightly indirect way because the projects get set up separately. Typically, the warranty of a project when the new equipment is bought, is basis standard equipment warranty and the customer decides because it's a competitive offer, often through an EPC or consultant in between, it is a like-to-like comparison. But there is a strong affinity between, say, like a boiler needing boiler chemicals, and it is a big part of our performance chemicals business already. But can we do more on that front, I would say the answer would be, yes. And it is an area that we are investing more. It is also an area where digital technologies and a variety of different things also come into play. So it's a good question in that sense. It's an area of focus. The numbers are small right now, but it is one that we think we can do better at, agreed.
And the second question, can you give an idea as to what percentage of revenue would be from spares and services for us in both energy and environment? And in the pie chart where you show the order book, so is the aftermarket orders are also included in that segment? And related to it, we were working with IoT and remote monitoring of our system in field, where have we reached in those initiatives? And has it helped in us in getting bigger the size of our stable revenue stream in aftermarket? How big is the scope for us? And what are the challenges in that business, means over a longer period of time?
So I think to the first question, the numbers are included in the overall numbers. But for competitive reasons, we will not share details. To your second question, I think remote monitoring, please give us another 6 months. Let us make substantial progress on some of the key things that we are working internally. And then I can come back and share. It is something that we are working on quite actively, but it's too early to share like details on revenue mechanisms and how deep is the penetration and some of those things. I do hope at some point, should we be comfortable, we can come back and share, yes. But quite a bit of work happening in that area.
Just the follow-up on the first question. Related to first, can you give some idea of how much this business -- this pure services or recurring business would have grown in the last 3 to 5 years? Just not the absolute numbers, but let's say, in terms of growth, how is it doing or growing? Just some idea.
Again, without -- and again, I will not share specific numbers. It has grown faster than our average business, and it has had positive growth. So those -- that is something that I can share, but we will not share specific numbers.
The next question is from the line of Anuj Sharma from M3 Investments.
My question is relating to the order book in the small businesses. You've made some references to it but some more color. Just how big would be the contribution from the figures less than INR 5 crore orders in either our revenue or in the order book?
Rajendran, would you have that number specific?
No. That's, I think a very minute detail, we wouldn't have that number with us.
Okay. Less than INR 5 crore, though -- each order less than INR 5 crore. I think what I can share, though, is that our distributor business, where we have a distributor-wide network that is across -- that is Pan-India and has somewhere close to 100 distributors and channel partners, which is a good sentiment of how across industries and across markets, demand is looking. Their demand is good. Yes, maybe a lot of talk around how some of the rural sectors have done well. But I think across segments and across India, I think their demand has been good in FMCG, in pharma, in distillery, sugar, agro, a variety of different sectors that are not concentrated in any part of India. We are above numbers that we were at a year ago. And some of those numbers are some of the highest we have had in our recent journey in history as well.
In the same light, could you also talk about the nonconsumable business -- sorry, nonconsumer-based business? So manufacturing and related, excluding chemicals, how do you see the buoyancy in those segments, especially the impetus by the government and all that. Have you started seeing some traction up?
We have seen no impetus right now from the government infrastructure spend but we are seeing strength from, say, steel, cement, those industries are doing well, yes. So Q1, we had almost nothing from sponge iron. All of them were practically working at very, very low capacities. Cement was slow. We were getting no orders from tires. All of that now is back to where it was a year ago. And in many of those cases, those customers are looking at capital expansion systems. So -- but those capital expansions are still not funded into capital projects that will show up for us. So -- by the way, we have our numbers that 30% of our orders are less than INR 5 crore.
The next question is from the line of Susmit Patodia from Motilal Oswal AMC.
Maybe just a little bit more on the data center solutions. When you develop such solutions, what is the competition landscape like? And who are you replacing? And what is the proposition?
Specific for data centers?
Yes, because, I mean, assuming that this is going to grow leaps and bounds.
Look, data centers should be a growth area for us, but it's not that big an area today. Yes, data centers, in many cases, work on the power that comes in, comes from grid power with backup from gensets, et cetera, yes. So it's not like a big area for us. In cases of water treatment and all, we provide solutions. Going forward, that space can change here, which means what is provided through gensets can be provided through fuel cells or battery technologies, integrated solar and microgrid solutions that can come into play. A lot of water solutions, which again are driven by the nature of power because a good chunk of the water that is used goes for the nature of power that is there in a data center. So the future can be different, but currently, data centers are not a big part of Thermax's business at all.
Ashish, actually, I was referring to the atoM. When you developed this...
Yes, yes, yes. So atoM, from a water treatment perspective, I don't have the specific portion percentage number of what percentage of atoM goes into data centers. But I do know one of the first wins we have had in atoM has been for a data center application for a global major in cloud services who was the ultimate user of that data center, but I don't think I have the specifics with me right now on atoM, what percentage is fully active.
What is the typical competition there, Ashish? Who are you replacing if this is your first win?
So many of these applications in water, in particular, yes, the market is very, very fragmented. You have a couple of the bigger names that you can -- you would know that are our competitors. And there are 2 big players that are of a similar size that Thermax is. But a disproportionate portion of the market, I would say, well over 50%, is made up of mom-and-pop players and solutions set up put together organically by local markets. And that, I think, is -- as these mandates get tougher, as the designs -- as we are able to improve our designs better and better and provide significant capability, that market provides then consolidation in that market, it does provide opportunity for growth. At least that's our expectation. Whether we can deliver that or not remains to be seen.
[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Question is -- I mean, historically, we have seen Thermax -- historically, we have seen Thermax being very stringent on the terms of trade, especially the advances and the LCs. And to a certain extent, it has constrained the growth. Are you seeing that some part of relaxation needs to be done, especially on the percentage of the advances that we get and a trade-off between growth that the overall cash flows are not impacted?
Rajendran, would you want to take this question?
Yes, so did I hear your question right, Bhavin, on the focus on our cash flow and working capital and impact of that to our business?
Yes, so the stringent advance criteria that we have to a certain extent curtails our growth. Is there a case that we do a slight moderation in those terms and press the pedal on the accelerator for growth?
I think, Bhavin, I think you did hear earlier Ashish speaking about our focus -- to focus on our profitability as well as our cash flows. I don't think we are going to dial that down. We -- these are 2 numbers and 2 areas that we will continue to focus on. So not that we are thinking of anything on the lines that you are mentioning.
Sure. The second question is on the captive power business. So if you could give us how large is that business on an annual revenue basis, what is the current order book of the business? And how are you seeing the outlook on the captive power segment in terms of it?
Ashish, are taking that?
I'll take that. I think our captive power business is a reasonably big portion of our business. I don't know a number specifically, but you can take a look that our entire heating business, in some sort, is a power business. It either goes into power or steam, which will all be part of central utilities complex or a central power complex. So I think it is a reasonable portion of our business. It is a portion of the business, as I said, long term, will get affected by energy transition. And as it does, there are a lot of trends out there that are good for us. As has been -- as I said, even in this quarter, all the successes that they had were relating to wastage recovery, relating to biomass, relating to spent wash, which is how do you recycle, how do you get energy out of this, how do you bring it back into the -- into creating power and energy and all of that. And even going forward, as hydrogen comes into play and other things come into play, we should have opportunity as well. There will be risk, there will be opportunity as well. So yes, I think our entire energy business in some sort depends on captive power of some sort of -- I wouldn't say entire, I think we have a fair O&M and utility, which is beyond just the captive power plant. I don't know the number, but it will be a substantial portion of our energy business today.
The next question is from the line of Atul Tiwari from Citigroup.
Congrats on good set of numbers. Sir, just one question on your order book. What proportion of your order book will be fixed price contracts? And what proportion would allow some kind of commodity cost passthrough?
Good question. I think -- if I may answer your question, I think the majority of it is fixed price. There are 2 major contracts where they have some element of price flexibility, but the majority of our contracts are fixed price. The fixed price component has a couple of things, the product portions of our business and the services portions of our business. We have a window to increase our prices as well as we see commodity prices going up here. So there, the equation is faster. It's for our project side of our business where we pick up a project. Typically, what we try to do is all major ordering, we try and finish off in a small window. So you are exposed to the commodity price increase in that window. And then whatever you could not order or whatever you could not fix, you are exposed to that number. And that number is reasonably -- is a reasonable number for us, and we are looking continuously how do you mitigate it, how do you manage it with the steel price increase that has happened. And on the chemical side of our business, we have a similar look with styrene as a primary input, but there are 2 or 3 other inputs also that are driven by larger petrochemical that -- input chemical that comes in based on their pricing. So as I said, majority of them are fixed price. Majority of that fixed price, we have mitigation for, but there is a reasonable amount that we do not have mitigation for. And in some cases, we are actually going back to the customers asking for price increases. So we're doing a lot of stuff. We can't say whether those things will succeed or not, but there is an attempt internally to try and minimize the impact.
Okay. So sir, majority of order book being fixed price, so how should we interpret majority? Is it like 90% or more like 60%, 70% broadly?
I think Rajendran, you can share...
Broadly, I mean -- I'm just kind of trying to get a broad number.
Would be 90%.
90% is it.
Is it. Rajendran, any difference of opinion, I don't have the exact number, but...
So I think you should look at our power business as well as our environment business and our TBWES or boilers and heaters, these are primarily project businesses. And I think that's the one which Ashish was referring to. Rest would primarily fall in our product and services part of the business, yes.
And within that fixed part, again, majority risk has been mitigated for the majority part. So again, that majority will be like fairly high 70%, 80% or on the lower side, risk has been mitigated?
Yes, I think on the point of risk mitigation, I think we have really clarified that we have the opportunities and actions that we can take to reduce the gap on this front. It is not that these are sort of back-to-back and there won't be an impact that would be seen clearly. But things are where we can definitely act upon quickly. So only the project part of it is where I think on the fixed price contracts, we will have a bit of a challenge where we are working on.
I think in summary, I would to add to what Rajendran has said. We do have an exposure, we know what that exposure is, how much are we looking to work through, and the teams have a very clear action plan also in trying to mitigate. But we do have an exposure on our books with the steel price increase that has happened, for sure.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
First question is pertaining to the enviro segment margins. Just want to understand, we have seen a sharp growth sequentially in our enviro segment revenues. How much of that is coming primarily from FGD revenue booking and how much is it from non-FGD? Second related question pertaining to that is we haven't seen any operating leverage coming in this business sequentially, our margins are largely similar in that 6.5%, 7% range despite a 60%-plus kind of revenue growth. So how should we look at the deviation in margins, please?
So this is specific to the environment business because in the rest, we do have leverage that is showing up. And as I said in this quarter, especially, we have -- it is the impact of that volume coming through that has been the primary driver of improved profitability. Was your question specific to environment?
Particularly to enviro segment margins, yes.
Okay, so enviro is both our water business and our clean air, which is the environment portion of our business. I think there, you have 2 portions here because the FGD business, of which we will now start to see impact, yes. So far, the impact has been relatively low, but you will start to see impact. And I do think that the overall profitability of those FGD projects is below the average profitability of our -- of the overall environmental business, at least how -- what we plan and what we target, yes. So that is clear. And as you know, those projects are very competitive and all that. And the size of the projects is bigger. Yes, so I do think as the projects show up next year on the environmental side, the profitability will get impacted. It has not been impacted as much yet. But we also have operating leverage, which as the overall volume grows, we will have some improvement. We are seeing strength in our water business and the rest of the environmental business, which has good possibility. The end result will be driven in large part by our -- back to our execution capability. Rajendran, anything you can add, please, that will help?
No, I think you clarified on it.
Can you please, share a breakup over there between FGD and non- FGD? How much was it in the quarter? And another question that I had was if you can also share the tentative CapEx numbers that you're going to spend in the current financial year? And what have you planned for the next financial year, please?
Rajendran, please.
Yes, okay. So I think on the FGD, we regret we would not be able to share that upfront at the time. On the CapEx, I think that this year would be a lower number than our regular average of INR 40 crore, INR 50 crore that we would have spent given the situation. The next year, we do anticipate that this number would go more up, we anticipate to somewhere around INR 70 crore or so.
The next question is from the line of Renu Baid from IIFL.
I just have one follow-up question in terms of the company's strategy to use inorganic to expand its portfolio offering, especially on the technology side, given the global energy transition that we are foreseeing over the next decade. So what are the thought processes on this side?
I think it's an area of working both through technology partnerships, through technology licenses, through potentially M&A also. So all of those are under constant evaluation. And it is something that is very important and has been for the past as well, but very important going forward. As you can imagine, we can't share any details. The question you are asking is very pertinent to Thermax.
And could it be expected sooner than expected or it will still take some -- still some time away?
Depends here, so I can't share anything specific, of course. As something happens, we would be more than happy to share, but we can't share anything at all, unfortunately.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Varun Ginodia for his closing comments.
Thank you, Lizan, and thank you so much, sir, for patiently answering all the questions from the participants. And I wish happy New Year to everyone on the call and have a great and prosperous 2021. Sir, in case you have any final comments, I hand over the call to you. Thank you so much.
Okay, thank you very much, everyone, for patiently listening to us. And I'm sorry in some cases we said we couldn't answer all your questions. But -- and I appreciate your patience. I think you will see we are sharing more and more. And in future quarters, as we see more inputs, as we see more clarity, and we are comfortable sharing, we will share more information. So thank you very much.
Thank you. Ladies and gentlemen, on behalf of Ambit Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.