Thermax Limited
NSE:THERMAX
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Thermax Limited
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Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Thermax Limited hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.
Thanks, Stephen. Good afternoon, everyone. I would like to welcome you to the Q3 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.I'll now hand over the call to Mr. Bhandari for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Good afternoon to you, Bhoomika, and to everyone else that's on the call. Welcome back. I guess we have not spoken for a quarter now, and a lot has happened in these last 3 months.One part of the picture felt like déjà vu, again, in terms of -- and I'm saying again because it seems like it's happened now -- happening now for the fourth quarter in a row. But this particular quarter, we'll talk about what were things that we further did not anticipate on the commodity price side which resulted in this margin drop, and we'll talk quite a bit about it there.On the commercial front, we continue to see strength in terms of overall ordering, even beyond a couple of these 1 or 2 big orders that we are showing. We see strength that our base business has moved up a level, as you can also see from your numbers. The question now is whether it holds or continues to move ahead or potentially goes a little down as well. I think the trends are not entirely clear based on some slowdown that we have seen in December and January, but is that because of the Omicron wave working its way through and then the strength will come back, I think we'll see as we finish off the remaining 2 months of the quarter.Overall, I think most people that I speak with are continuing to be bullish on the CapEx scenario, and the budget has definitely helped. I do expect that with this, some of the more private expenditure will also start to make its move around.Internally, our focus continues to be on in terms of the growth side, in terms of the green agenda, making -- becoming more and more capable out here, continuing to push our products and services. The international bit, which hasn't resulted in as much success as we'd like yet but continues to take quite a bit of time internally, making this a more digital company. And then, of course, right now, from an operations point of view, across the company, making sure that we work through some of these cost challenges relating to commodity prices, if we are able to manage those effectively.We've shared with you the analyst pre-read and the analyst presentation that covers the business, the trends, some of the highlights for the quarter itself. So I'll skip all of that and open the floor for questions, so that we have more time for Q&A.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the large orders that are there in the pipeline. Last quarter, you had mentioned about a couple of large orders which can potentially come from the steel sector. Are you seeing that rectifying? Are you seeing any further large orders, both domestically and internationally?
Okay. See, I talked about large orders, and I've said that many of these large orders are in the mix relating -- relative to government projects, yes? And the 2 that we have shown already: the FGD one from NTPC; and this other one, which is not exactly a government project but one that has been under discussion and has been bid long time ago, now going through its final bids and awards.Similarly, in the refining and petrochemical side, in -- there are quite a few bids where -- that we have made on which we are waiting for results to come by. Very competitive space, so very tough to say whether we'll win nothing, whether we'll win 1, 2, 3, doesn't -- we don't really know what can happen. So there's a bit of variance out there.In steel, we've had good success in steel. But the really big plans of steel for the 2 big players who have announced those big projects, they won't show us for maybe another 3, maybe even 4 quarters.
Okay. So we need to wait for another 3 to 4 quarters for those orders to get rectified, you are saying?
Steel side, yes. On all the rest of it which -- where I've talked about, oil and gas and refining, which is the EIL, IOCL, HPCL, HRRL, for those related projects, those are already -- they have been vetted out and are in work in progress.Internationally, we have 1 or 2 projects, but nothing like the old Dangote kind of really mega deals in the mix. We have quite a few hundred crore-plus opportunities under discussion.
Okay, sir. Okay. And next comes in terms of the pricing and margins. So basically, with orders seeing a fair bit of pickup, are you seeing the pricing power for you coming back? In the sense the pricing of your orders, are you able to improve the pricing, given the fact that input costs have gone up and margins have been under pressure? So is there a scope for improvement in pricing over the next 12 months?
I would say, yes. And the challenge that we had, and this is a question that -- for because others would have this question as well, it was not just commodity pricing, it was the rate and pace at which extent, yes? And specifically, if I take our chemicals business as an example where we had our pricing for certain commodities, especially for some of the ethylene dichloride, the methanol -- methanol, not as much, but definitely ethylene dichloride, caustic soda lye, fuming acids, all of them, they, just in November -- and these are all domestic price, yes, the pricing practically doubled overnight. Within a period of 2 to 3 days, it was just that pricing had completely dramatically -- it felt like it dramatically changed.And that was very difficult to pass on because we had already taken those orders. We did go through a big price increase in December on the chemicals side. Interestingly, a couple of the global chemical majors, including -- and some of it is public information, so Dow has also announced a big price increase. So I think, yes, we are very open to increasing prices. We think we have some pricing power. It is just that the fact that it went through so suddenly in a way that we could not really pass on.
Got it. So last time we were like close to double-digit margin was in FY '17. So do we expect such margins in next year? Or how much time would it take to reach such a kind of margin? Because this year, I think we will be ending up with 7%, 7.5% margins, if I'm right.
I think where you are, I shouldn't say the range is broad, but I think it's sufficient. I think that, that is something that we are internally seems like -- given there are only 2 months left in the year, I think that is fair.Long term, I think you can think of our businesses as at least 2 parts, yes? One part is the products and services, places, businesses that we need working capital for. And especially right now, we will have to make some technology investments on the green side, invest in certain product capability, R&D. So those are areas where some money will go as well. But there, overall, you would expect the margins to be higher overall.On the other side, we have got certain of our project businesses where it will be, understanding the competitiveness of India, will be tough to get the PBT at least to 10% margins. And tough meaning that is not something that we plan for as well. But these businesses run on negative cash flow and are, we think, are accretive from a value generation, cash generation perspective and very [indiscernible] to the overall Thermax story around being able to help our customers on energy sustainability.So I think we'll look at our businesses accordingly and not have a hard rule that every business needs to be 10% PBT or otherwise. But overall, should our margins be better than the 7%, 7.5% that we have, I also expect that is very much the -- yes.
Next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.
My question was most likely on a medium- to long-term basis. We all acknowledge the fact that...
Pankaj, can you speak a little louder, please? Thanks.
Yes. Can you hear me now loud and clear?
Better.
Yes. So we all acknowledge the fact that the way energy will be produced and consumed going forward will be quite different. Can you lay down your thought process from a growth perspective of the company in the view of changing landscape in the energy sector? And how do you see Thermax evolving as a key player in the entire value chain? And I think that will be very, very important from our perspective.And second, from a capital allocation, now we have more than INR 2,000 crores cash on the balance sheet. As you transform into the greener side, do you think more deployment of cash will go on, on projects and JVs and acquiring technology? So some sense on capital allocation also would be helpful.So these are my 2 broad questions. Nothing related to this quarterly, but more on a sense where the company is going through.
Thank you, and a very thoughtful 2 sets of questions. I'll do my best to do justice to both of them.To the first one, what does Thermax do well today. Yes, Thermax has been a player in India's energy story for a very long time. That all -- that much we all know. The unique capability that we have is understanding energy needs at an industry and a customer level, which means we are not really a broad utility-based player but very much an industrial player, understanding all aspects of energy usage across multiple industries, yes? And so today, that energy usage, in many ways, is driven by coal. It's also driven by fossil fuels. But that picture is changing now, of course, yes? So that picture is changing, driven by many. It's driven by the availability of newer models around -- today, you can do renewables based on biofuels, bioenergy. You can do solar, wind, increasing the storage, a variety of different things that will replace what was the captive power plant of the past.Also, the economic models are changing, all of them being CapEx-driven. Today, many of them are O&M and services-driven, I mean, some of which are comprehensive. Increasingly, people are asking for build-own-operate model solution as a service.Through all of this, I think the role that Thermax has is to be a partner to our customers, helping them through energy transition, which means the needs that the customer has. Like how do I go about it? I want to cut energy usage, we'll have energy efficiency solutions. You want to take your existing processes, make them greener, so we can do, as we talked about, waste to energy, different kind of fuels that can come into play. As those customers graduate into wanting completely solar, storage-based solutions, Thermax has to pivot to be able to offer those as well.So the whole capability around growing services in a much bigger way, adding solution capability where we have our total model today, which is build-own-operate, which is growing quite well, continuing to push, adding solar upgrades, adding solar storage to some of those solution capabilities; and then finally, in this green hydrogen world, where our capability has to come about. Those are the broad areas. But all of them are targeted around helping our customers through energy transition. So that's the first part of your question.The second part is practically answered by the first, which is where will our money go in allocation. It will go towards these things. Yes, we will add a little bit for adding digital capability. We will add and continue to build our solution capability, offering utility as a service. And then finally, as we find the right entry points into new energy around hydrogen, we will look to make those and make sure that we have enough on our balance sheet to be able to make some of those moves.I hope I answered your questions, yes?
Yes. I think large part of it has been addressed.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
The first question is when we look at your quarter 3, the last 3, 4 quarters, you say it's a very broad-based recovery.
Can you speak up a bit louder again?
Okay. Let me restart. When we look at the last 3, 4 quarters, you've been saying that it's a very broad-based recovery that is happening in the economy and then for you as what you get in the orders. But when we look at you going after FGD, I think it's a big order which came from a private player, which has its own issues in the past of payments, you won a very high, high good-sized order. And also I think you are involved in some of -- one more FGD order, which is probably NTPC.So can you help us -- it's very contradictory because if it's a very broad-based recovery, why would we go ahead and take a very -- optically a very low margin, very thin margin business orders? Can you help us understand if the other industries -- obviously, there was a pent-up because our sector cap goods saw a very late recovery when consumption went up. So is it still the other sectors now are still coming back to the pre-COVID kind of a [indiscernible]? [indiscernible] limited orders of INR 100 crores, INR 200 crores so eventually, you have to [ renew ] orders on the FGD side? Can you help us understand that? That's my first question.
Okay. I think I will do my best to answer the pieces of the question that I did understand in between. Your voice is cutting in and out. But specifically, if I restate your question, it's around FGD, the reason to take these L1 FGD orders when we were having margin pressure on the ones that we already had, so -- and why would we go do that when the data is a broad-based recovery overall is then. So I'll answer that question.The fact that there is a broad-based recovery is shown in the fact that even outside of the FGD order, we are now north of INR 600 crores. And the next biggest order was much, much smaller, yes, so even below INR 200 crores. So it was overall continuing to that trend that we had talked about of a broad-based recovery very much holds. We have got a few more bigger orders -- or big orders, not bigger orders, but big orders also in the mix that we will see as in when they show up, depending on whether we are winning those or not.Now let me take the FGD question specifically. The first 2 FGD orders that we got, we were brand new in the market. And I think the overall industry in India is also relatively nascent. Yes, the pricing was set by the few NTPC rounds that happened before we entered. But because we had really good technology out here, we did want to enter into this at the right levels. And in the first couple of orders that we have taken have been a learning opportunity. I'll ask Rajendran to share a little bit more around how we look at our current set of FGD. And of course, it has hurt us in 2 quarters.The question then is why did we go back for the next 2? the first reason is that we expected the next 2 to be at much higher margins, yes, to the point that when we had bid those projects, we had a margin threshold. And we had said we will not take any order below this margin. And we've always been very good even on the FGD side in not working with customers that have back payment terms or not. Even the FGD order that we have gotten in Q3 is one of the best names private players in the Indian industry. And so in that sense, it's top notch here. It's nothing -- and the other one we can share is with NTPC. So those are the only 2 orders we have taken. And when we had bid, we had expected the margins to be much better than our previous orders.That said, because both of these orders, and a little bit is the nature of the FGD industry itself, because they have this long back-end approval process, we bid these orders nearly 9 months before these projects actually came to and were awarded. So the margins have actually come down on both of these orders as well relative to when we had -- when we thought we had bid over, yes? I'll ask Rajendran to talk about.So -- but unfortunately, once you put a bid in the market, you really can't withdraw it. And the name like Thermax, of course, you would want to go back. The -- one of the projects also has the price increase clause and all. So both of these are -- we are comfortable bringing them in. We are not unhappy with them by any means. And they are going to be corresponding to how we execute our projects. Neither one do we expect a significant cash outflow currently on both of these newer projects.The second bit I would say is that all these FGD projects, a, you have put the entire business around this FGD, so we need to be able to manage it, sustain it and find what is the long-term period with it, yes? They also provide a big role into the Indian economy by cleaning up the air. So it is not something that -- so even that approach is important and relevant. And for us, which is very much in this segment, it is an important place to play. Long-term FGDs have got potential for very good services revenue as well because all of these plants that will then be handed over for long-term services. So for multiple reasons, we thought it was right to continue this. We don't expect to be very active on the State Electricity Board FGD orders. And we've been always clear we wanted to work with Tier 1 entities and not beyond that.Rajendran, would you add anything on the FGD bit specifically on margins? And a long answer, but I think we should answer this question.
Yes. So I think, Ashish, you have covered most of it. I may not have much to add except to state that the first 2 orders, we -- there has been impact of COVID as well because of the delayed time line of execution. So we would have our overheads panning out in this period impacting us, number one. Commodity cost increase, which we know, I think, increased during this period, which has been sort of unprecedented, which has also hit us. The third is, I think, the China embargo that having the Power Ministry put, ordering some of the equipment out. So we have had challenges on that. That's some cost increases. And I think also a learning opportunity for certain FOIK kind of costs have also been there.So it's been in a couple of unfortunate items that have taken us by surprise on this one. But we are working towards trying our best as it goes to full-fledged execution in the coming year to see whether there could still be some margins that we would be able to save on this front. So that's the effort that we are on currently.
Got it. Got it. This is helpful. Just a second question, more of a clarification. In chemical business, even in the last quarter, it's more of a price hike than the volume growth. Even in this quarter, as there been volume growth, it's more in, large side, price. Because when I see the chemical companies, they're reporting almost the volume growth to be flat, negative, whereas it's showing more of a pricing growth. So just one clarification on that.
You're talking about our chemical business, right?
Yes, yes.
Yes. So we have -- I think we've had volume growth as well, which you would have noticed on the back of additional capacity at our Dahej plant Tier 2 capacity addition that we had done. So I think the volume increase has clearly happened.But I think Ashish explained to you earlier about the sudden price correction that we faced on domestic chemicals, which we were sourcing. And I think -- and we've had orders to execute in hand and which were in the price corrections could not have been implemented, and that's where I think we have faced this challenge.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Yes. Three questions from my side. One, When I look at your energy segment sales for the quarter, that's grown by about 9% off a very weak base of last year. At the same time, the order book for this segment actually has grown fairly well, last 2, 3 quarters also when I look at it. And even this quarter's order book is, I think, upwards of 30%. So what's leading to this low growth here? Is there some customer-driven deferrals of orders? Are we facing some other challenges in any specific large order? If you could please talk about that?
Okay. So I'll answer, and I'll ask Rajendran to add also.If you remember, Q3 last year was coming from Q1 and Q2 kind of a complete shutdown and partial recovery in Q2. And in Q3, kind of there was a bit of a release of a lot of finished goods that were under production and all that. So Q3 had shown a jump.When you take a look at what's happening now is that we have seen for the last 2 or 3 quarters good growth across the board. What that has meant is that some of our shorter turnaround businesses, which is like our heating boilers and, to some extent, our chillers, also our services business, they are the only ones that are coming in. And what is shown up in that 9%, those businesses have grown well beyond that 9%.Meanwhile, in the bigger orders where we -- where our backlog has come down quite substantially a year ago after 4, 5 months of COVID, there, the backlog has built up very, very nicely, but they will release -- most of those will go through execution and come out in this Q4 and in -- overall in the quarter. So we don't see any major concern out there. All the orders have been taken with some amount of thought. And we think we still have capacity to take in more large orders as well overall. So we don't see a concern.And overall, we are -- I think now we are finally in a place where execution is going smoothly, yes, across the board. Even on the FGD side, this is the -- these last few months have been the best from an execution point of view: limited hiccups; the rains are behind; the China issue is behind; limited COVID shutdowns. So we are now executing quite well. And across the board, I think we are happy with overall the speed of execution. Rajendran, would you add anything on this?
No, nothing. I think you clarified it.
Okay. Fair. And just on the margins as well in the energy business, again, I think fairly weak this quarter. And you did allude to the fact that RM prices went up, I think, specifically on the chemical side, but I'm assuming you would have seen similar impacts in energy. But more from a slightly longer term, what kind of internal targets do you have in mind on the energy business in terms of EBIT margins over the next couple of years?
So Ankur, so I think that would be difficult to answer honestly because we have quite a mix of businesses within the energy segment and multiple projects and I think in some of the larger businesses. And I think to be able to give you a margin expectation on that front would be difficult. So that -- excuse us on that.
If I may add, so overall, I think the energy segment last quarter also started to show bit of a trend that we were starting to show some consistency. And I think this quarter was a little bit of a step back, but overall direction, at least on the energy segment, should be consistent, yes? We will look to continue to grow that. And while our end goal, we may not be comfortable sharing, certainly, we expect our margins to be better than what we delivered this last quarter.On environmental, on the FGD side, on the 2 orders that we have taken already, there, we will have a bit of a pressure as we release those into next year as well. We hope we can do better than what we have done so far. But until we show that on the ground and manage our remaining risk well, I don't think we can commit to anything.But on energy side, we don't see any particular worry that will prevent us from doing better. I think even the high commodity prices, we can manage. It is when something goes up disproportionately within a quarter that becomes a bit of a challenge. That's it.
So alternatively, if you could help me, what percentage of your order book is on a fixed price contract or -- and how much has a pass-through? I would assume since we have a majority on the private side, quite a bit would be without a price variation. But it would be helpful, out of your current backlog, how much can be...
Yes. Across the board, I would say our services and our chemicals business -- actually, none of our business have got a price variation clause other than 1 or 2 very, very specific FGD orders here. Other than that, maybe there are -- maybe there's one other contract where I've heard of internally where we have had a price variation clause.Overall though, on the large projects that we take in, I think, and we have talked enough about FGD and the first of its kind, the unit. If I take all that out, most of our larger projects, in fact, our largest project business which is a large boilers business, it's better than expectations, has done better than its standard margins, showing great ability in both these large, long-run range businesses.To take it, what we are doing is when we get an order, and with the private sector it's very much possible, you make sure that all your ordering happens within a very, very narrow window. So you base it exactly on the commodity pricing that you are seeing in that cycle. So most of the time, we have managed it well. It's actually in our shorter-cycle businesses like a small boilers business or our pooling business or our environmental business, where you've taken an order based on -- because many dealers sell it in all based on fixed prices. And then you execute that over 3 years based on continuous inventory that is coming from vendors and all. There, we have seen pressure, entirely driven by increase within a quarter.
[Operator Instructions] The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, my first question is if you can just give us the mix in terms of the short-cycle product business or projects right now. And as the cyclical recovery picks up in the capital goods space, these short-cycle product businesses, what's the kind of growth rate trajectory which you can see going forward? That's my first question.
Charanjit, I think, are you looking for the order balance mix? Or are you looking for the current quarter revenue mix on the short cycle in the project direct costs? Charanjit, are you there?
You may be on mute, Charanjit.
Mr. Singh, if you are able to hear us, please do respond.
Yes, I can hear you. Can you hear me?
Yes, yes. So I was asking this split of the mix that you were asking was on the order balance or on order...
So this is on the revenue front, if you can talk on the revenue front. And as the cyclical recovery picks up, from the revenue perspective itself, what kind of growth rate expectation which you could see for the standard business or the short-cycle product business?
So I will -- just give us a few minutes, we'll have to give you the short-cycle orders and the project business revenue breakup in this quarter. I'll let you know in some time as the call progresses, yes? Will that be good?
That would be fine, yes. Yes, can I go ahead with my second question?
Yes, please.
Yes. So sir, and on the sales and services portion of the overall revenue mix right now, how do you see that business when you -- Ashish talked about services as a portion growing in certain segments. So in terms of overall mix, how we can see services growing and the proportion of services increasing the overall revenue?
So yes, Ashish, do you want to take that? Okay. So currently, I think, as you will realize that our product and project businesses order book and the order book is at a good high in terms of the domestic scenario. So the services growth that we would see would obviously be a bit muted. It wouldn't be at the levels of growth that we see in the product and the project businesses. That's because of the current cycle of booking that we are seeing. But having said that, we continue to see positive growth on the services business across all our segments, and that's doing fine.
If I may. So overall, I think services is one of our better stories, simply because services, each new platform that we reach increases the baseline for all future ones, yes? So services is not one like a big order that would, say, go up and go down. And historically, we are right now increasing services faster than and reaching newer peaks than we have ever done before, yes, to the point that, look, right now, if you are saying, have you grown services 57% the way we have proven our overall orders? No, we haven't. But is services being very profitable, very accretive on a basis of continuous growth? Very much.The focus that I would like to bring about, which is something that we look at internally and are creating a culture of looking at that internally, is take the bigger orders out, what's happening to your base business, yes? And the base business, which for Thermax pre-COVID would also have been of the order of INR 1,100 crores, INR 1,200 crores, is now brought in to this point of INR 1,500 crores, INR 1,600 crores, which is entirely driven by incremental continuous growth in services, growing channels, growing products, growing capabilities. So it may not grow 57% like a big project that comes in can double, but it does provide a lot of continuous improvement, which we really, really like.
Yes. Ashish, so just if I can squeeze in one last question from my side. You talked about rising competition in oil and gas space and even other segments. So can you just highlight a few larger competitors who are competing with us in this segment?And in terms of when we look at the overall manufacturing capacity for some of these products, what's the kind of industry capacity utilization? Because a lot of capacities are already built up, but the cycle was weak. So we would be sitting on still higher manufacturing capacities for these products. Hello?
Yes. And your second question was in...
My question was on the competition. As you have talked about increasing competition in the oil and gas space and even in the other segments, so if you can touch upon who are the key competitors which we are seeing here.And in terms of the overall industry manufacturing capacity, what are the kind of utilization levels? Because there might be a lot of idle capacity, which would be lying in this space of maybe boilers or other industrial companies.
Okay. So to the first point, I don't think the competition has increased, yes? It is the same set of competitors that we have always had. So it's not the -- but because the oil and gas projects tend to be government tendering-based projects, it would be not right to speculate on what is the likely outcome of any of those big ones, which is why I say we don't know what it will come back as, but we have bid on quite a few projects. The competitors are the same ones, yes? Maybe here and there a little bit change, but no dramatic change as such. In terms of capacity utilization, we are reaching a point where in many cases, our own capacity for a certain slot or otherwise is starting to get to the point that we are getting filled up. In most of these cases, we understand which portion of that activity needs to be outsourced. We have the whole network of external partners. We never fabricate whichever get the entire boiler built out, of course, but intermediates portions, yes? Things like fabrication of very specific items, all that, we will go out to external vendors for.I think, overall, we can manage the capacity of it right now. It's not come down to the point that we would say no to an order because there is no capacity. But that capacity availability is getting tighter and tighter, yes? And as we finish this year with more than INR 8,000 crores of orders, the run rate that, that gives us in certain areas, in certain parts of our business, depending on the slotting, capacity is getting tight, for sure.
Yes. Charanjit, I think we just wanted to answer your question on those percentages. So projects would be about roughly 50% plus. Products would be about 30%, 35% plus, and the rest would be services.
The next question is from the line of Renu Baid from IIFL.
Before that, could we just share at least what is the growth rate in services as well, so there is no -- on the orders, yes? I know we don't have it on revenues.
Yes, sir, please proceed.
Okay. So services, I think relative to where we were last year, at least in this particular order -- quarter from an orders perspective, the numbers are, I mean, close to double almost. Some services are relating to total kind of build-own-operate. But even if you take those away, we are seeing good growth on the services side, yes? And a lot of emphasis and focus is also going on the services side.Sorry. To the next question, please.
Ms. Baid, you may please proceed with your question.
Sure. So my first question is on solar. If Ashish and the team can elaborate on what exactly are we planning to do in the solar vertical now that the team is already built in that segment. And what will be the value addition which Thermax would be offering to its customer or our competitive advantage or edge versus peers? And what kind of business model are we looking at? Predominantly, we'll be NTPC-driven business model or similar to TOESL or utility-based service to customers in this space? And any targets in terms of how do we plan to scale up this business over the next 3 to 4 years would be helpful.
Okay. Good question. Again, I think on the solar business, we have not talked about much in the past. Historically, Thermax has been playing in solar for quite some time, but our focus was on rooftop-based solar and primarily on -- not primarily, entirely on CapEx, yes? So we were doing sub-5-megawatt rooftop projects for our customers, doing them fairly well, but entirely on the CapEx side.Over the last year or so, we are seeing a lot of our industrial customers coming back and saying they need more, which means they are asking for much higher megawattage. They are asking for solutions like round-the-clock, storage, a lot more complexity in terms of need and, most importantly, asking for OpEx kind of solutions.We think we understand the industrial customers quite well and the use of energy at these industrial customers quite well, which means our overall capability to know how energy gets used at variety of industrial plants is quite nice. We also have a fair bit of connect with these customers based on serving their energy needs for a long period of time. We understand project execution capability quite well as well. And we are not afraid of technology, like integrating different elements on storage, multi-generation, biomass. Integrating all of those is something that we actually think we have a strength for. And that strength can tomorrow be taken to hydrogen as well.So with that in mind, we have changed our tack on the solar side with aggressive growth brands, putting in a whole team which is, in addition to the old solar team that we have, several industry domain experts who have spent a good chunk of their careers in solar coming to lead that forward.On the growth side, we have aggressive growth expectations. But as we grow, we will come back and share. We are not going to go to utility solar. Our focus is in entirely industrial. So working decentralized, but larger solar solutions for our industrial customers.
Just a bit of clarification here. So while we would be dealing only with industrial customers, you also mentioned OpEx-based solutions. So would that mean that TOESL kind of services that you are giving to customers on a build-own-operate basis, similar offerings could be looked within the solar umbrella? And if so, how do we look in terms of protecting against the efficiency levels from the solar products? Because we have seen while customers on the utility side the scale is different, but people who have been operating would have had problems, 5 years, 7 years down the line, especially committing for the same level of efficiency levels. So how do we look at combating some of those challenges within this business?
Look, I think the first part to your question is, yes, we are going to be offering TOESL kind of solutions on the solar side as well.To the second bit, the technology risk is relatively low. Yes, there are other things to consider, and this is also potentially competitive. So there would be other risks that come with it. But the technology risk is very much manageable. A, many of your -- at least on the efficiency side, the products themselves come with very well understood warranties, the people that are coming in. And while we have got good idea, I mean -- and we've been running solar plants for now well above 5 years where we do O&M cases. So we have a good idea of what -- how the evolution happens on the O&M side. There's now a lot of data that is available. And overall, it does come down to maintaining these, using the right kind of technology, understanding the models, what is the natural degradation curve, how do you balance that off with how do you clean these panels, how do you maintain them, also, what kind of projects you get into, where are these panels installed, et cetera. I think we can manage the technical risk, yes? It doesn't worry us.
Got it. And lastly, on the chemical side, while you mentioned that some of the peers have taken price hikes and we had a bit of issue last quarter. So where are we in terms of taking on the required price hikes? Even on oil prices have remained [ formed ] in 4Q sequentially as well. So when you look at chemicals margins, where do we see the margins heading in the near term? And from a medium-term perspective, are we track -- on track for the 20% kind of margins which you were expecting?
Yes. So on the chemicals, we have done price rises. I think Ashish mentioned it in the start as well. Price corrections have been implemented in the business. And I think we should start seeing that reflecting in the quarter 4. I think, of course, the commodity cost stability in this quarter is also something that we look forward to. That's, I think, something that is -- that is something that we had to expect.However, I think on your other bit of question on margins, I think chemicals, we've always targeted better margins than what we have reported this quarter at around 11% PBIT. I think the business has an ability to do clearly 15% to 17% margins. Of course, the earlier year margins of 20% to 26% margins that we have reported are in the backdrop of lower commodity costs. And I think those may not be very sustainable. I think I hope that should give you the required answer.
Yes. I think -- sorry, if I may just add to Rajendran. I think he said that what we performed last 2 quarters on the chemical side was definitely below our expectations. And this particular, we thought we started Q3 by implementing one set of price increases. But we got hit very badly by sets of chemicals, which even in this price cycle had been relatively steady but suddenly went up, yes? Like November, we -- as I said, certain commodities went up 2x in price, yes? It was just not possible. And freight also, while we have managed to pass more and more, we were not -- because we were fighting in an international competitive market, we could not price -- pass on all the freight increase charges.We are now at a place where we have incorporated a big price rise in Q3 already. And if the commodity prices stay where they are, we hope it will stay, yes? But I think expecting 20%, 25% PBT would be excessive. I don't think that is our -- our aim also. We want to do volume growth continues, and we would like to have a profitable business, which is in the 15% to 20% range on a continuous repeatable basis, yes? That's the goal for our chemicals business.
Sure. And sir, one bookkeeping, what is the YTD completion on the FGD old projects which we have in our backlog? That's it.
I think we've done with close to 50% at the moment on our -- one of the business -- one of the orders, the first one that we had. I think the next one would probably be somewhere around 35%, 40% plus -- 35% or so.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
Yes. Sir, first question is pertaining to again on the pricing front. When we look at it from your order inflow perspective, if one were to segregate, I know it's not exactly possible, but what kind of price increases have we taken across the board? So when we're to dissect what kind of volume increase you would have seen in your new orders versus the pricing adjustment or increment that you have done for the new orders that you're bidding, how would this growth in order flows look like, of course, excluding that large FGD order that we have booked?
Okay. I think from a -- so we are not comfortable sharing the actual difference because some of this is also quite competitive right now. And especially in many of our standard products, some of this is very, very competitive information on what kind of price increases we are going through. Suffice to say that the jump we have had is a mix of very good volume growth and price growth, yes? So both of them have had a role to play.In coming quarters, we expect even more price growth. But the breakdown between the 2, I would say they're both substantial. But without giving exact numbers right now because they are very, very important in the current scheme of things, what we -- in how we want to run, I would prefer if we don't share that as I can -- as I've stated that it's significant volume growth as well in the numbers that you are seeing.
Sir, intention over here is not to understand the quantum of pricing. It's more to understand the business volume growth that you are seeing on an ongoing basis. So say, if I were to ask you what would be the volume growth you would be foreseeing in your orders, say, in the next financial year, probably what would you guide for that?
So overall, I think I'll see if I can, based on our backlog, give you some sort of volume growth. But I would say...
Sir, for new orders is what I'm trying to check on.
I didn't get the question if it's for -- you're saying, looking forward, what kind of volume growth would we expect? Is that the question?
Volume in the new orders, basically what you're bidding for, if I were to quantify your orders in terms of volumes, what is the kind of growth you're looking in volumes, not revenues?
Okay. I think in the chemicals plant where, for example, specifically, we have got additional capacity which is available, we would say at least 2/3 of the increases that you will see in the immediate set of quarters should come from volume growth, yes, which means we expect to continue to grow this volume and utilize more and more of our chemicals capacity.Outside of chemicals, where we don't -- like there is nothing like a specific capacity to a plant. There is, but it's not like a continuous process, yes? These are discrete manufacturing units where you can -- and also you've got external fabrication capability and all. So it's tough to indicate what the volume growth in -- that we expect in the future. I will repeat by saying that where we are currently at this kind of run rates in our businesses, we are somewhere between 80% and 90% plant capacity utilization, which is higher than pre-COVID times as well right now.
Fair. Understood. Second question was pertaining FGD, you have given some quantum of completion of orders. If you can give a road map kind of how this will be ramped up over the next 2 years. Or was this -- say, INR 100 crore revenue booking what we did in FGD last year, where that number as an overall as a percentage of revenues would stand in the current as well as next financial year, if you can guide.
Okay. I think of the orders that we have as of the beginning of the year, which is the 3 orders that we had at the beginning of the calendar year, and now we have added a fourth one as well, but of the 3 that we've already taken in, I think this year we should finish somewhere north of INR 350 crores worth of revenue that we will recognize this year. And the number which is higher than this is what we will recognize next year. It will all come down to execution, but somewhere in the INR 450 crores to INR 500 crores is what we should expect to execute next year as well.
The next question is from the line of [ Aditi Bharti ] from [ Nivesh ].
Sir, I have 2 questions. One was I wanted to understand the expansions that you are planning in any of the specific segment from the power or from the oil and gas segment. As you are receiving the order, any of the capacity expansion that you are planning?And my second question was pertaining to the heat exchanger segment, the environment process equipment segment. I wanted to understand the adoption of air-cooled over water-cooled heat exchanger, the technology adoption as such, if you can throw some light on that.
Okay. So first, in terms of capacity, I think I've answered the question previously as well. We do not differentiate in our businesses between like an oil and gas boiler versus a boiler for a different one. We do differentiate our supply chain between large boilers and small- and medium-sized boilers. So I don't think the first question, as such, is an industry-specific question.But in the oil and gas boilers, as I said, in portions where we have supply chain constraints with our internal capacity, we have got good external vendors for, say, a particular machine which is out of capacity. We will reach out to external partners to get that done. So overall, we don't see a big concern right now on supply chain on the backlog that we have taken. If the order inquiry continues to be as robust and goes even more robust, it is possible in the near future, we will have to think. But right now, we think we have abundant capacity available, yes? So that's the answer to the first question.On the cooling side, look, we -- our biggest portion of the business, yes, which is the bread and butter, is the absorption chillers. The air-cooled condensers and the associated heat exchangers are relatively very, very small portions of our business. And even there, we are looking to become very analytically clear on what is our core capability and what is it that we will do. And there are portions of those businesses that are actually me-too and not of interest to us going forward. And at the right time, we will make those announcements. But overall, that's such a small part of Thermax that it's not very relevant for an analyst discussion, I would say.Okay. Where we are big, which is 90-plus percent of our business, is the absorption chillers, yes? And there, we are market leaders. And the new capacity, the new plant that we added in Sri City, all of that is for absorption chillers. I think we are out of time as well, yes?
Sir, would you like to move to the next question? Or...
Yes, maybe we can do one last question.
We have one last question in the queue, sir.
Sure. We'll do one last.
The next question is from the line of [ Harish ] from Jefferies.
So I just have one question. So what percentage approximately would account for order book and order booking from the private sector?
We don't have that number specifically. I think we should be able to go and get that number, and we will share it separately. I can say of the top 5 customer orders that we have, 4 are from the pricing sector this time around. I think in the next coming quarters, you will see, as I said, the bigger orders on the refining side, petrochemical side, they are still not awarded one way or the other. So then as some of those projects come into play, I do expect the government bid to go up. Right now, it's -- I don't have the exact number, we will get it. But of the top 4 orders -- of the top 5 orders, 4 are -- at least 4 are private sector. And the single biggest order, the FGD order, is also from the private sector.
Sure. And just on the part of order backlog, approximately what will be that number, like order backlog?
I don't have the number. I think we'll share it in whichever analyst call we come to next. We will collect that information and share it.
I now hand the conference over to Ms. Bhoomika Nair for closing comments. Over to you, ma'am.
Yes. Thank you, everyone, for your time and for attending the call and especially to the management for giving us an opportunity to host the call and answering all the questions quite patiently. Thank you very much, sir.
Thank you very much for listening to us and much appreciate it that you chose to spend the time with us. Have a great day. Thanks.
Thank you.
Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.