Thermax Limited
NSE:THERMAX
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Thermax Limited
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Ladies and gentlemen, good day, and welcome to the Q4 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 Advisors. Thank you, and over to you, ma'am.
Thanks, Stephen. Good morning, everyone, and a warm welcome to the Q4 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 opening remarks. Post which, we'll open up the floor for Q&A. Over to you, sir.
Hello. Very good morning, Bhoomika, to you and to everybody else that's on the call. Thank you for being part of this session today. And based on what the earnings release were, I expect this to be quite an interesting discussion. And so I'll take some of these things head on here, which is, first, what's our environment like, what happened in our chemicals business, what is the impact of commodity prices across the board and then kind of covering it with headwinds and tailwinds for our business as a whole.
So first, maybe just taking a step back and talking about the macroeconomic situation. I would say cautiously optimistic. And I'll say why I would be optimistic in terms of with the rest of the world already talking about a recession, and why do we think we are looking at this with a glass more than half full.
And just in terms of the headline numbers that you see of this INR 3,400 crore order book number. Over the last year, we have spoken about that there is a pipeline of these big projects that we expect to get decided sometime in the year. And the first quarter was a little slower, but in the second, third, fourth quarter, there was quite a bit of action out there. I take my strength not from these bigger orders, but from the continued broad-based recovery that we have seen in multiple segments here. So segment after segment, I can look back and say these have been some of the -- some of the best quarters in terms of steel, cement, pharma, food, multiple sectors. So that kind of gives us a little bit of strength.
Second, in terms of the question around what is happening globally and how is India then difference in this -- in India and many of the markets here, I would say, that, I think, is an open question, and that's where the cautious part comes in. But from the optimist side, I would say the fact that overall debt rates are relatively lower. Multiple sectors are benefiting from -- on the manufacturing side, from just these [ PLI ] schemes, the China Plus One story. Overall, India from a debt rate perspective from the overall capacity to continue to invest seems in a reasonable position.
And then the last bit I would say is that from a sectors perspective, not just India, even some of our growth sectors in Southeast Asia and Africa are showing resilience because our exports market were relatively slow in the -- while India had taken off, we are seeing some amount of strength there as well. And you will see that our international numbers were relatively strong in Q4 as well. So all of that kind of says that it can continue for a little bit.
The challenge for the Indian economy is to work in the zone where demand continues to be managed. And on the input costs are kind of tapered down in a proactive fashion. And in that regard, the events of the last 1 week in terms of some of these export [indiscernible] on the steel side, allowing them to import coking coal, helping them on managing the input costs overall. I think if we can manage that gradually that the sector doesn't hurt, continues to be strong, yet becomes supporter of overall growth could be a fantastic time for India. So that's the whole part one.
Second, what happened in our chemicals business. I'll say what we did not do as well and what were economic situations that impacted us. So what we did not do as well is the raising the prices even before some of this happened. I think we could have done more to increase prices. And the reason we did not or we could not as effectively as we would like was that we have structured our chemicals plan to become more of an export-oriented business on the resin side, especially, which is where the impact was the maximum as well.
And so we had structured our business to be an exports unit, as I said. And what happened was that through this particular year, we have been pushing out some of the freight charges and getting better and better at doing that and absorbing some of the commodity price increases because we are looking with the new plant that we have in the hedge. Volume growth is also a big area that we are focusing on.
So many of our long-term customers, we could increase prices a little bit, but not to the extent that the commodity price impact that happened to us. So that, I think, overall, we could have done a little better on. We have taken big steps at the -- in Q4, but the result of that will start to show up partly in Q1 and then later on as well. So that is point one.
Point 2, what happened was because of some of what happened, the geopolitical situation, the supply chain got impacted quite a bit. Supply chain got impacted, one, in terms of revenue where we had a lot of inventory, which was on the water, lot more than any of the previous quarters. And even previous quarters, we have had inventory in water, but that number kind of grew even more so. So the profitability on those, we were not able to recognize.
We had a couple of shipments to Russia, which, again, where we were not able to deliver because of all the complications and the customer that we had was actually an MNC customer, which has now chosen to terminate operations in Russia. So it went through a little bit of that challenge as well.
And then fourthly, from a supply perspective, gas availability got impacted in Q4 quite a bit in our Dahej plant, which, and surrounding both our Dahej and Jhagadia plant, where gas was not available because of some of what happened. And whatever gas was available, the price on that went up as well. So that was the net impact of that. I think we have recovered, started recovering from that in April with a sharper recovery as things stand in May. That is the expectation now that the supply chain issues are somewhat managed. The biggest concern that I see on our chemicals business still is styrene supply where 2 of the plants globally for various different reasons are going through shutdowns, et cetera. So there's styrene supply which is in -- which is a big question as we look at our Chemicals business. So that is the second part of [indiscernible] as I look at the business.
Third, I would say, in terms of our green products and the things around waste-to-energy. Our overall business model in terms of biomass, bioethanol, all of that continues to be very robust here. And some of the supply chain problems globally are getting people to focus even more on some of these options. And in that sense a portion of our portfolio which is growing is slow but growing definitely is our solutions business, which is our biomass supply and our solar grid. On the biomass side, I think we are now crossing 30 plants in India which we are doing on a build-on operate basis where we do long-term contracts. And then in terms of solar OpEx, it's a relatively small part of our business so far and the OpEx part only started in the last 4 months.
We were putting the team for the 3 to 4 months before that and we have now kind of done 2 OpEx projects and a committed deliverability of 25 megawatts more or less in Tamil Nadu and Maharashtra. And with the expectation that in the first year we would like to do somewhere in the 50 to 100 megawatts range and we are confident of getting to that number. Our focus is industrial, our focus is our core customers who we work with on many other aspects of energy usage and that is the segment that we want to continue to focus on. I think that's the summary. let's get into the questions and as there are more things to explain about our numbers we will get into otherwise as well.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the inquiry pipeline and the large orders which are there in the pipeline. If you can throw some light on it. We have seen very good order inflow traction. How much can it continue over the next 1 to 2 years? If you can give your thought process, it would be great.
Okay. How much can it continue? I think we will see because the market overall has got reasonable view to large projects, at least for the next 1 year as well, which means the areas where we got these large projects, which is refining and petrochemical, cement and steel and power, which is the FGD portion of our business. All 3 of these segments -- all 4 of these segments have continued visibility to wanting to do capital-intensive projects. The question is availability because they're all areas where projects are competitive, so very, very difficult to say. And especially in an environment where Thermax wants to increase prices, whether we will, when these projects or not remains to be seen.
And even in these last quarter, while you see so many orders coming in, there were at least 2 major orders that we simply said no to as well because we were not comfortable with long-term pricing on some of these projects. And so it's going to be an interesting time period the next 3 to 9 months, I would say. Very difficult definitely.
Okay. Say, in terms of the inquiry pipeline in terms of megawatt terms or low terms year-on-year, if you can indicate some kind of growth that we might have seen, if you can put a number to it will be great, sir.
I think we are not in the megawatt business at all. And power is actually direct power is a small portion of our business with all this impact of waste-to-energy and various different impacts from our product portion of the business.
If I take a look at just general pipeline improvement in terms of overall pipeline relative to where we were before COVID, we are, I would say, more than 20% above in terms of overall pipeline development and health of pipeline relative to pre-COVID times.
Got it, sir. And last week, development on this export duty on steel, will it push CapEx lower in the steel sector? Your views on that?
I think it will impact it a little bit because you can see many of these [indiscernible] companies which had very robust CapEx plans. Many of them are already saying no, this will impact their CapEx. Too early to say by how much, but I think for the government also, it's a balance of high steel pricing, bringing the entire economy down versus a moderation of prices which keeps the rest of the sectors also wanting to invest in steel while we not wanting to invest to the entire extent, still wanting to invest. So I think the question is better put to the steel companies.
I do think this will moderate demand support from the steel sector, but it should give a jump to the overall economy in terms of managing inflation and including Thermax would be a beneficiary of that, yes, given the impact that we have from steel prices.
Got it, sir. And my final question is with respect to the chemical margins. So basically, last year, full year, we did around 12% EBIT margin. What kind of margins should we look at next 1, 2 years, given the fact that we are delaying pricing -- price increases a bit?
No, no. Now we are getting Q4 increased our prices quite a bit, and the impact of those prices will take some time to show up. So if there is some amount of stability, we do want to get to that double-digit profitability very fast. I think because that stumbled so badly on predicting what we -- how our chemicals business will pan out previously as well give us some time, but our focus is clearly on that double-digit profitability in our Chemicals business.
So it's fair to say low teens kind of margins is something that we will be gunning for on an annual basis?
Rajendran, what would you say?
Well, Ravi, I think you'll have to wait for a bit probably this quarter for it to run through because that has given us hopefully visibility on supply availability as well as the supply chain issues and settling down. There has been then I think we'll be able to give you, and I think we'll be able to see the margin story for this year coming through.
The next question is from the line of Sumit Jain from ASK Investment Managers.
Yes. Just in line with the previous question, clearly, you are working towards getting back the margins in chemical business. But on a longer-term strategy, if one looks at it, the chemical sector in India, this sector, particularly for Thermax was, like we mentioned in the past, specialty chemicals, resins and construction chemicals. So this was in line with selling to your own clients utility chemicals. But the kind of scale-up in other chemical companies in India that has happened, perhaps Thermax has missed that trend.
And like you've just mentioned, if I look at Q4 FY '18 data as well, we don't have control over our destiny in terms of margins because of this tiring fluctuations whenever crude goes up. So in terms of your long-term strategy for your chemicals business, could there be some improvement?
Okay. So there are actually now 5 parts of our chemicals business. 2 that are resin based, which are specialty resins and then kind of more general purpose, Anion and Cation-based resins.
The second part is our water treatment chemicals. These 3 are our biggest portions. We have oilfield chemical and we have construction chemicals. Both of these are relatively small. In this particular -- last quarter that went by, our oilfield chemicals business was where we have supplies to Russia, which got impacted.
I think I would not be as pessimistic on our chemicals business. It's a business where we think a tremendous potential like this. And while we just need to work through some of these short-term hiccups, but long term, this is a place where we want to continue to add capacity because in these spaces that our resins business play, the overall demand globally because Indian suppliers have a very low market share is something that we can continue to grow. And so let me help understand what is it we are doing to manage our price impact at least.
What we have gotten into in Q4 is to -- with more and more of our customers get into a variable pricing model, where the price that we provide to them has got some link to styrene. Not many of our -- not all of our customers will have such a link, but even if we can get to 30% to 40% of our major customers with such a linkage, that helps us at least bring some amount of sanity to our margins here because last year, we were posting 24%, 25% profitability in a couple of quarters and this year, kind of we have gone the other way. But getting into that consistently in that double-digit profitability number is, I think, something that we are looking to get with this indexing in terms of pricing.
Second, I think in our focus of working with U.S. customers, in particular, and Europe, we are adding head count in those markets, which means we are investing costs in those markets to build long-term relationships in both specialty chemicals and in terms of resin. So both of these will take a little bit of time. But both of them, we see enough line of sight to give us confidence that we think we are on the right track. And if anything, long term, which is long term is the next 1 to 2 years, we want to be in the mode that we are actually adding capacity in our chemicals business.
Last, I would say our construction business is a small business, but there also, we are seeing some amount of strength where India overall is demanding more and more construction chemicals. And if we continue our focus on the industrial segment, it's a very small part of our business, not even relevant to the -- it's only relevant to the second decimal of our chemicals profitability, but one that we think has tremendous potential for growth as well.
So overall, I think our chemicals business has got a lot of these headwinds. But if we do it right, these headwinds should be short term and this long-term business, which has more than 50% -- well more than 50% of its revenue coming from exports is one that we can, that can be a big part of Thermax's growth story in the long term as well.
What portion of resins are actually dependent on styrene as a raw material?
Styrene as a raw material, what is the impact percentage? Quite substantial on our resins business. It's the single biggest commodity, and we can get you the exact number. I know the number, but I just want to put it in context of what -- how much of our overall business. And so before the call is over, I'll give you that number.
And the current capacity and the capacity utilization?
The current capacity in Q4 was actually relatively low because of some of these price increases, Russia impact, natural gas impact where we couldn't run the capacity. Beyond a particular point, I would say we were barely at a 60% capacity utilization in our new plant at Dahej. So we have got quite a bit of capacity available to grow.
And overall capacity number for resin business would be?
For which business for resin?
Yes.
So resin's overall capacity would still be 70%, 75%.
No, 40,000 tonnes, [ I'm sorry ]?
Yes, 40,000 between the 2. But in the HR capacity, rated capacity and debottleneck capacity is slightly different because we don't run the plant at full capacity either, yes. So we are looking to manage it effectively.
So at our pulp plant, we have close to full capacity utilization. There was some impact from gas availability and et cetera in Q4, but overall, we are at capacity utilization. Dahej Phase 1 and Phase 2 together, we would be at in Q4. Overall, the teams giving me numbers at 68%. Q3, we were at 76%.
Yes. But I would say even this 76%, there is still some debottlenecking we can do in Dahej to even increase our rated capacity as well. Our current rated capacity is 36,000, yes. And with a debottlenecking that can get it to 40,000.
And my second question is on standard boilers for your sales and high range boilers, which you will be booking, I believe, in TBWES full year numbers.
What was the question?
And just what is the size of standard boilers for Thermax FY '22? And what is the size of high-end boilers, which I believe will get booked under TBWES in the subsidiaries in terms of your annual revenues?
Sure. I think TBWES, you see the revenues we share it as part of our subsidiary numbers. Both of them -- both of these businesses are tracking 20% plus growth numbers.
[indiscernible]
I don't know. Do we share absolute numbers, Rajendran?
Not for our individual businesses, but for TBWES you can wait for the subsidiary reasons that will be [ falling ] part of our annual results, we'll be able to have that.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Three questions. One on the overall demand environment per se. Given the sharp slowdown we've seen on the consumption side across FMCG, auto, cement, you name it, right? I mean everything getting hurt by inflation and seeing negative volume growth. Just wondering why the possibility on the CapEx side? So that's something I'm trying to kind of understand.
And secondly, if you would say the pipeline is up by 20% pre-COVID, but is it price driven and therefore, that's what's getting reflected in the higher 20% pipeline?
I think so. On your first question, you need to answer that question having a larger view of the industry in terms of the macroeconomic impact. While there is slowdown in FMCG, which is -- I don't see that in every sector, like at least in the -- in many other places that I look, people are still looking to add capacity and most people including air conditioning, including water solution providers, real estate, textiles, many of them are continuing to see growth. And certainly, cement and steel are both still looking to add capacity.
Refining and petrochemicals still looking to add capacities quite a bit. But I think this is something which what the situation will be 90 days from now, 180 days from now, difficult to say. So we can have our range ability, I would be cautiously optimistic. It is not that is kind of -- there's a sharp slowdown at least in the way that you had mentioned. Yes, at least I don't see it. Maybe it is a little bit slightly off and let's just wait and see. Sorry, what was your second question again?
Yes. So you said there's a 20% growth in the pipeline...
I would still say there would be double-digit volume growth even in that. Yes, there is a price impact. And you can see from our numbers, we haven't done as good a job of passing all the pricing. So there has been a price impact, which is maybe 10%, but there has been more than a 10% volume growth clearly. And we can see that in our plant capacity utilization, the labor hours that we are doing at the plant. And in that sense, what is the labor hours in the new volume that is coming in all of those counts, we see that those numbers going up.
Okay. Perfect. Sir, secondly, on the FGD side, where again, we got a few large orders this year. So my guess is that NTPC is largely done ordering on the FGD. So it's going to be more state and private. So how do you see the pipeline kind of building up there also on the margins given, I think some of the call also you mentioned that orders haven't been created, right? So just wondering how are you looking at new orders and [ margins ]?
So on the order side for FGD from the private players also, we see more strength than maybe I would have said 6 months ago. Yes. So the NTPC and the government ones are done. But on the private side, there are multiple customers that are now looking to execute projects, so which is a positive sign.
On the state side, also, there are several projects that are in play, but we are very, very cautious on the state side. Yes, we don't -- we're not an active player working with state utilities -- I mean, state electricity boards and all that. So we are very, very cautious.
As the year goes, we may choose to act on the state side as possible. But on the private players, we would like to play, and we see sufficient activity that is actually better than what I would have said maybe even 6 months ago.
In terms of pricing on and the impact, there has been a big impact on our bottom line from FGD projects driven primarily by the long gestation period of these projects. And so we thought we did a good job of bidding these projects. But even in the 6 to 9 months, for these government projects, between when we bid to them and when it actually gets awarded, there has been quite a bit of impact.
In NTPC, there is a clause for steel price indexing, but that only takes care of some part of the cost. There is impact on our margins, which has been seen in Q3, Q4, and there will be some impact this year and potentially a little bit next year as well on these. And in some cases, we are even going back to renegotiate contracts and pricing for at least all the new projects has been increased quite a bit. I can see FGD as an area which we will continue to talk to you about in future quarters as well.
Yes. So we see some strength on the order side. Some tailwinds on the cost side as well, where there is some softening of steel prices and everything, but we have seen a lot of headwinds in this business as well.
And just last one on the refining side. Globally, we've seen refining CapEx come off given the energy transition. My guess is even in India, apart from IOC, which is still ordering, even [ HPBP ] has largely done with orders and refineries. So -- and obviously, that's a large area of orders for this year and maybe even '23. But then going into the next few years, how do you view the space? And how do we reduce our dependency and which big area or big, sector kind of compensate for the slower ordering from refineries? [ Yes, that's all for me ].
So I think long term, I would agree with you. But the definition of long term to me is beyond the 7-year, 10-year period. I think the next 5 years, at least India's dependency on fossil fuels on many of our segments relating to transportation, relating to petrochemicals, plastics, all the derivatives will continue to be strong. And we can see in the discussions that were happening as much as we are wanting to, the more we want to have control of our supply chains in fertilizers and many other places, the requirement and the need for investments in refining, petrochemical, fertilizer will continue to be very high.
So -- and here, we are a very different story from global because globally in many markets, oil demand may have reached a peak or close to a peak. In India we are far from that number. So that's kind of in the refining and petrochemical. And if anything, we continue to see projects that are being announced that are reasonable.
In my view, what will replace it is also something, which is a good discussion to have. First part is how much can you convert into electricity. So there, India wants to do 30 gigawatts a year until 2030. We are far from that number right now. Yes. So we are barely half of that number, if anything. So where does that come from? Is an open question. Biomass, bioethanol is part of the answer, but that can barely address 5% of what India needs.
The question then is what happens to coal in the India's energy basket because we today don't have a replacement for coal. It could be nuclear in the long term, which I think would make a lot of sense, but it has a lot of geopolitical and other questions any time you touch nuclear.
I think coal gasification will have a role to play in India. And Thermax is actively looking at coal gasification technologies, including working on our own technology which in our mind is best suited to address Indian high ash coal. And I do think coal gasification is part of this answer of energy security and winning off of global supplies. So a long answer to your question, I think that's a discussion which is beyond just the Thermax quarterly results one, but for the refining in petrochemical side in the next 3-year period, at least, I don't see a slowdown.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Housekeeping question. Of the INR 9,400-odd crores of order inflow for the year, what percentage would be the base orders and what percentage are the large orders?
Bhavin, I think give us some time. I think we've declared the large ones to you [ clearly ] during the period of time. We will just figure that out that goes at what percentage. We'll let you know shortly.
Sure. But is an assumption of 60% based on 40% large orders an out of whack assumption or broadly you would say that is more or less correct.
Look, I'll say that when we started, I mean pre-COVID, we were at that INR 1,100 crore, INR 1,200 crore base order book. Yes. Then early in quarter, we had talked about INR 1,500 crore base orders, which is where that 20% number comes in. Today, I would say I look at the business and say I would expect the business to provide INR 1,600 crores or thereabouts as the order book and then on top of it, bigger orders.
Q4 was slightly better even than that account, but I think there may be some softening as steel comes down and all that because that price impact is also there.
In terms of the direct big orders that we had this quarter, about INR 1,600 crores were the -- were the direct big orders that we had in this particular quarter.
Even if you take the INR 1,600 crores, the number shows more than 2,000, there were 2 orders that were INR 100 crores plus. So even if I take that out, about INR 1,700 crores to INR 1,800 crores would be the base orders that we would have done in Q4.
Sure. In terms of margins, about mid-single digit for the larger orders and early teens margins for the base orders, would that be the fair assumption according to you, given the way that we have gone through an unprecedented times on the availability as well as the price of materials, if assuming it's a big assumption that things settle down now in the next financial year, would these assumptions be fair according to you?
Bhavin, I think, yes. So we faced 2 situations. One is on our product side and other is on our project side, where both of this primarily has been fixed price scenario for us. And the ordering out for projects will typically happen at the time [indiscernible] a short period of time of the orders waiting finalized, whereas the product side will get ordered over a period of time of its execution. So we have challenges on the product side primarily. And the project side were limited extent on certain exposure that we incur over this life cycle of the project, which is [indiscernible] at the time of execution at the site.
Yes. So to the extent that these prices come down and second, lower than the current situation there is. I think on the product side, we should see an improvement definitely. That's the hope. And because some of these orders that we have would have been picked up at prices that we would have considered at the first time of [ wait ] on a certain estimate basis, given the current [ 10 ] prices then, now that these prices are at a higher level, any decrease over that will definitely help us.
Sure. And just last question from my side. You alluded to the outlook on the sector wise, maybe just how are you seeing the opportunities in the steel and the cement sector? Cement sector is earlier you were saying that the opportunities are largely in the waste yield. Is that opportunity still existing bulk of that is over? I mean this is my last question. The opportunity that you see in the steel and the cement side.
As to cement, I think we went through a phase where the brownfield projects, many of them happened. And there, I think we're going through a bit of a lull period now with -- in Q4 in particular. But on the other side, there are a lot of new plants in cement that have been announced. So I do think this place will be active again in a 3- to 9 months -- in that 3- to 9-month window in terms of ordering because our -- overall side on the steel, on the cement side, there are quite a few new projects also that are getting announced.
Similarly, on the steel side, we have gone through not a slowdown -- we are still seeing strength on the steel side, but there are bigger projects that are still in the annual which actually on the steel side, the bigger projects may not even hit our books in terms of orders in this calendar year. In our estimate, they are more set for our portion of the ordering for next year.
So both cement and steel, I would say, reasonably positive. There is -- the brownfield projects are done, but the private CapEx based new project spending is still available.
Bhavin, on the other thing that you asked. We had FGD orders of about INR 1,400 crores and the sulphur recovery order of about INR 1200 crores during the year. And then we had also declared a INR 350 crore approximate order in our large boilers business, so roughly all of them put together is about INR 2,900 crores plus for [ an order book ] of INR 9,400 crores, roughly about 32% as we can see.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
So my first question is that the international side, while you have talked about in detail on the domestic opportunity and how various end markets are behaving, certainly in the international markets in Indonesia, where we have done the investments and in the other geographies where we have significant presence, how is the outlook there? And is it now when the global varies are starting to become much more bigger that there is some kind of slowdown which you might see in the export side? That's my first question.
Okay. See, international is an interesting one, yes. All of last year outside of Q4, we thought international was lagging behind where our India business was effectively. In Southeast Asia, the overall pickup was a lot more muted relative to India. Yes. And I think in areas where demand was really strong, like Vietnam, et cetera, maybe we were not as locally present and active as we perhaps could have. So maybe many of those opportunities in those markets went to Chinese companies and other people.
But in our coal markets in Southeast Asia around Indonesia, Thailand, Philippines, Malaysia, there, I think our pipeline is now getting somewhat more stable. And it is still not great, but our pipeline is a lot more stable now. Yes, including our plant in Indonesia, had, I would say, a reasonable Q4. If they can keep their orders at that number, they can break even and get the plant into profitability, which for year 4 of an operation of a plant is quite good, yes, because we, plants in that geography can take a lot more time to get there.
So I think I would say the slowdown that you see in the western markets, many of our markets, which is the Southeast Asia, Africa, Middle East, we are -- we started a bit after the recovery in the western market. So I think the story there is slightly different. Our challenge is more around improving our market share, hitting our cost points, providing products of quality to customers that they come back and give us repeat business. So that's more of our focus.
Okay. Sir, the other question you've talked about in the price hike in this quarter. One is, what is the quantum of price hike across which product categories we would have taken? And we have largely also project business, which is in a word tender-driven. So what percentage of the business actually benefits from this price hike and incremental quantum of price hike what you're expecting to do in next quarter?
Rajen, do you want to take that?
Yes. So Charanjit, I don't think we have a single number to share with you because we have multiple businesses where the price hike is a basis of multiple bids that we do in different segments. One is our standard or standard product, which is pushed through the channel segment and then there are direct bid then there are export jobs both on the product side as well as on the project side for each of the businesses.
And so they would all factor in the current reality and the outlook as we see at that point of time. Thanks for the balance execution period that it has to be done over for the margins that are required to be maintained in that business. So there is not one percentage across all our businesses or even in a single business that we can share with you at that the end of the percentage increase that you are looking for. I hope that answers...
But Rajen, in some parts of the business, can we give them some sense of what have we been doing on prices? Not a future projection, but at least...
Yes I think so -- I don't think I have that kind of number no, but I know we can probably try to get you that, Charanjit, on what we did in Q4, I think we can probably try and get you that.
Overall, I don't think we have covered and through our price increases, the impact we have had in terms of commodity price increases, especially in Q4.
Yes. That said, in Q1, we see that commodity pricing, the steel prices, especially softening. And it went up in a big way, but it is now coming down reasonably faster. Yes. So -- and in terms of price increases, we'll try and give some color here. We have these numbers. The question is how much do you share and how much do you not because this is competitive information as well quite a bit. So segment by segment, we have targets on commodity prices.
In the like-for-like, which is in the projects business, the reason I can say that on the project side business where customers that delayed ordering in Q3. And then in Q4, came back with the exact same project, exact same scope wanting to order on the project side. Our numbers of price increases were close to 20%. Very high teens was the number that we had increased the numbers by. I can also say that some of those projects, we were not able to close. Yes, because the customer said, no, the numbers are way off their budget, we need to go and rebudget and everything. In some cases, we even lost those orders. Are you guys there?
Okay. Yes. Ashish, that was helpful. So just lastly, from my side, we have been talking about these new initiatives, new areas where you want to get in. On the solar renewable side, any thoughts in terms of how we are scaling up any incremental momentum, which we would have seen and the industry perspective on the renewable side, how you see the things shaping up in the Indian environment?
Shared, yes, see, the market in the segment overall for renewables on the OpEx side is a bit of a mess right now. Yes, and it is bit of a mess because of FX fluctuations, lack of availability of panels overall -- even wind is a little bit -- there's lack of availability. And then you have this whole requirement that for certain projects in India, the sourcing has to be local, and then after that the -- suddenly because India doesn't have enough capacities and the government says no you can import for these projects. And then even for the projects that you're importing for, the tax impact in the [ BCD ] and the way it is applied, all of that. So it's been like from a supply side, it has been very topsy-turvy.
So in that environment, if I think relative to that environment, the demand is very good. So if anything, if the market can have some amount of stability on the cost side, I think a lot of opportunities on the demand side we'll get [indiscernible] . Our focus is entirely on industrial. We're not going for utility solar. In the last 4 months that we have been active in the market on the OpEx model, we have closed 25 megawatts worth of orders. With at least one project that will go into revenue streams in this quarter, itself, yes. So not -- either at the end of this quarter, but the more likely the beginning of next quarter, we would start to see revenues from the solar OpEx side.
As I said, our goal for the first year is 2 of operations is somewhere between 50 and 100 megawatts, which we are reasonably confident of doing and hitting.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
First question is pertaining to the margins in the Energy segment. We have seen these margins being quite volatile. And when we contrast the same with the share of international projects in the same, there has been a lot of weakness. The international contribution of this segment has come down significantly, half over the last 3 years if one were to look at that. So if you can just give some guidance over here in terms of margins. Is it more the product -- the project mix, which is causing the decline in the margins? And as and when these projects come into execution, these pressures will sustain or it is more a temporary impact of the mix which may change? And then probably we should look at the margins going back to those 9%, 10% levels in the energy segment?
Okay. So in the Energy segment, if you go back multiple years, then it is very simple that there was one very big project in Africa that both by the size of its project and the overall profitability, which we were able to maintain by executing that project extremely well. So there is an impact from that year.
Relative to last year and this year, I would say, in the energy segment, we have done reasonably well to maintain our share and possibly grow our share. And without this Q4 impact, overall, we were on track to delivering numbers that were okay on the profitability side on a -- from a percentage basis not great, but very good from a total number percentage. So our goal when we started the year was to improve profitability and increase volume. Increased volume, we did better than expectations. But profitability until Q3, we were kind of saying, okay, can we find a way out it, but what happened in Q3 and Q4, took the percentages down. In Q4 in March, what happened, that was entirely unexpected.
Yes, like the steel that we buy, the flat steel that we buy went up by like 15%. The long steel that we buy and the B2 plates we buy went up by more than 20%. The stainless steel tubes that we buy went up well above 20%. All the aluminum, nickel were at one point, 80% plus above within a 2-week period. So that impact in Q4 was quite a bit.
In that light, I would say the energy segment and our energy business actually did quite well to put out the numbers, that it did. I think Chemicals is where the impact was massive for us. But in the Energy segment, we kind of did okay. If the numbers come down, and there is some reasonable amount of growth that we can do, I think we can grow this number in the coming year and beyond because we see fundamental reasons where while our products will be -- will have better demand and acceptance in the market than other's people first.
International, I already talked about that one single international project. Our focus is more on growing base business in international, which is our factories internationally do getting into more and more segments internationally as opposed to depending on just one big project. There, I like the path that we are on. Yes, it's a slow path, but it's a consistent path, which is a good one. Yes. So I'm more cautiously optimistic on growing international business and not comparing us to one project of 3 years ago, but looking at it on a year-by-year basis and looking now to base from the base that we have to grow that.
Got it. Second question is on the solar assets that you are aiming to build. What kind of annual CapEx allocation will you put to that, which would be based on the model where you set up capacity and then sell forward to the industrial customers, which you had spoken about? If you can give us a guidance more from 1 year and also from a 5-year perspective, how do you plan to increase the size in this business?
So Sandeep, we have, I think, disclosed earlier as well that over a 3- to 5-year timeframe, we intend to build a 1 gigawatt of solar assets in that particular business. And I think Ashish just mentioned, that we are targeting for this coming year, 50 to 100 gigawatts -- let me [indiscernible] in the business that in this period.
Yes, not all of the capital would obviously be booked by us in this. We would be raising debt for all these projects. You can assume that we would probably be contributing what -- a standard of close to 30% of the capital that might be required on the equity side for this.
So in absolute numbers, if you can guide, how much would be the investment next year and from a 5-year perspective?
Yes. So I'll give that to you over this call. Yes.
The next question is from the line of Jonas Bhutta from Aditya Birla Mutual Fund.
I had one question with sort of 3 parts. I wanted to understand and sort of take a more status update on a couple of new initiatives that you had announced to your 4 quarters back base to energy, solar lens, et cetera, out of which base 2 energy was something which was more in the sense heading towards maturity or something that was more tangible than the other 2 announcements. So just wondering if you take a stipulate on what's been the development in the past 3, 4 quarters regarding that business?
Which announcement specifically in waste-to-energy, are you referring to?
So about 3 quarters that we made we tied up with a European company to sort of [ cost ] for these 2 energy technology?
Okay. Okay. So I would say both of those were -- and one was an announcement that we did, I think you're referring to the Steinmüller one. The second one was not an announcement while we did, that was more of an early-stage start-up investment that we did. So it's too early to talk about the solar thin film because I think it's -- the technology side is still very much being worked on. And it is, I would say, a couple of years away before any of that becomes worth talking about.
Specifically on -- and even on the waste-to-energy, if you're talking about the Steinmüller partnership, we have several bids out in the market, but no closure, and no closure because the market itself hasn't had much closure because of the pricing for waste-to-energy in India. And this is municipal solid waste. So I'm specifically talking about a category of municipal solid waste projects in it. And I think, I do think that sector will break. Government will have to improve pricing and that improved pricing, many projects will become possible. But right now, the market is still relatively small.
That said, waste-to-energy overall is massively important to Thermax. Yes. And if you take a look at even the last quarter, the number of projects that we did that were biomass related that were -- and all of biomass is waste here, which is agro waste coming back into energy of various different sorts.
Then you have the whole distillery and sugar-based waste, which is the gas and Pentwash and getting some of that back into the energy source [ segment ]. We did -- we received 4 orders for -- no actually 3 orders, one this quarter for nonrecoverable solid waste for paper plants. We have gotten now 2 orders for BioCNG and a third one and many more that are on the [ anvil ] and a plant of our own on BioCNG, that is also being put in. Last year, we got Assam Bio utility project, which was relating to a 2G ethanol project. But we -- after that plant, which will get commissioned this financial year, we think a lot more projects are also possible.
So this whole waste-to-energy movement as a whole is of tremendous importance to Thermax and one where we are -- and, of course, we talked about the cement waste heat recovery projects that we had last year, and we continue to get -- we'll get this year as well. Similarly in steel also, there will be quite a bit of action on [ waste heat ].
So I think there, we are strong. The markets continue to be robust, overall. But if you're talking about the specific 2 announcements, I think -- and those -- both were really early stage announcements with different expectations, not much to talk about.
Sure. The second part of the question was more around the new product launch. Even this quarter, the PPT talks about 2 products in pooling and about a couple of other projects in steam engineering. So sir, internally, how do we track the progress that these products are making? So -- and if you can share with us like products introduced in the last 3 years account for what percentage of sales, how -- so we also sort of understand the kind of progress these products are making. Otherwise, it just largely becomes an announcement for us. So if you can help us track that, that would be great.
I think our, your question is reasonable. Unfortunately, what is our products and services business. I think we share what are -- what those are as part of our annual reports. We don't give a [indiscernible] on a quarterly basis, but we do share our products and services business on an annual basis.
In terms of what is new and what percentage of that business comes from new products, that historically, we have not done a good job of tabulating and doing it. It is something that we are working on internally. But even if we do that, I don't know if we will be comfortable sharing that because the touch to our business will become very from a competitiveness point of view, I don't know if we want to share that bit. But what I can share with you is growing services is a big part of our business. Yes, and services grew massively in this last year, and we think that growth in services in terms of -- is something that is repeatable, which means once you get to a particular point, you won't fall down as much as like what a project business can in a different environment.
Second, in terms of growing our products, and our products business is essentially 4 segments. It is our -- what we call as a standard boilers business. It is what our Clean Air business which is our environmental business, where we provide a lot of pollution control equipment to many industries.
The FGD part of the business is the project business. If I remove that, the rest of the business is the Clean Air the environment part of the business. That's a standard product.
The third is our cooling business, where we have a lot of new interesting applications around waste energy and the most recent product that we launched was a heat pump and then we have created products around low-heat conversion. So all of those are on the cooling side.
And then finally, our water business, which is where we have had good amount of growth on our water business. And what we are seeing is as we standardize the portfolio there, the impact on profitability is good. In fact, the water business did the best this year in terms of growing top line and keeping bottom line percentages stable. And of course, when you're growing top line, the bottom line overall improved quite a bit as well. But this whole standard product business is something that is of [ importance ].
Internally, we have restructured our company also to create an Industrial Products business unit, running them very differently from a philosophy from a capability perspective than our project businesses.
Sure. Lastly, sir, we've seen Thermax in this, as you announced SRU project recently, and you spoke about how you're working towards the coal gasification technology. So if you can elaborate on certain other large breakthrough [indiscernible]?
So the refinery one would be in a breakthrough that, that was part of the Thermax initiative to expand our portfolio in refining and petrochemical beyond the utility and the power block. And so this particular project is our fourth attempt at [ coating ] such a project, and this one was successful. This one, we are very happy to also share that because it is in Assam, where we are already executing a big project, our understanding of the local situation, our ability to manage and understand our cost structures, all of that was relatively good. So it gave us confidence to go for this project aggressively.
And now that we have on it, this creates a new segment for Thermax because SRUs is many Indian refinery and global refinery projects will lead SRUs. And doing this project will give us the required track record, both internally and externally to do more projects in the future. They may not happen immediately, like we don't expect another such order in the next 12 months, but if you look at a 5-year horizon, this creates a brand-new segment for Thermax.
Coal gasification is in its infancy. I think depending on who you talk to, coal gasification can be a very big sector for India or it may not become big. Because for India, there is a thinking, and I subscribe to that, that without coal, India's energy basket of 20, 30 years from now, you just cannot see how it will happen. Yes, because even if you grow solar at 30, 35 gigawatts a year, you're still left with a massive energy basket which you have to fill from some way. And if you have to figure out how to fill that, beyond coal, there is you can't depend on fossil fuels, and we see what the craziness that is going on in natural gas and oil pricing because India doesn't have enough of a supply chain of that.
So then the question is how do you get coal to become somewhat cleaner? And the only way coal can become cleaner is through coal gasification and carbon capture. Carbon capture, many companies in the world are working on, but there is nobody working on India high ash coal. So there, we think the work that Thermax has done is truly novel from an India point of view. And if the sector takes off, we will see, but we will need government help to take the technology to the next level. Our technology is still kind of good.
We have addressed a big technical risk of our technology with the plan that we have done, but scalability to a plant which is 1,000x and 3,000x the size of the plant that we have built will require an intermediate plan for which we will need government support. Okay. So a long answer to your question, but I think I've given you a very good insight into both these new areas.
Members of the management just wanted to confirm, can we take one last question?
One last question, yes, then that will be the place where we [indiscernible] close.
The next question is from the line of Aditya Mongia from Kotak Securities.
The question that I had was the first one was on margins. I understand that the capacity utilization where Thermax standard sector is can give a chance to have bigger, let's say, big margins incrementally. And I want to make a sense whether that was play out in a scenario where inflation and which way is high-end project costs are going up -- how much lever does Thermax have to improve this margin given where the capacity utilization is at this point of time? That's the question.
Okay. So your question was on capacity utilization and how is it doing? And then what is your ability to impact prices, now that capacity utilization is high? Is that the question?
Absolutely. Essentially, what I'm trying to get a sense of today, we are at very, very low levels given these seasonalities that are there. Can capacity utilization take margins on the complete other part over the next 2 years?
So I think I'll divide the question into 2 parts. Yes. The first question is on chemicals and then what is it for the rest of our business, especially in the heating side where we make large boilers and small boilers. On the heating side, where we make boilers, we are close to 100% of our capacity from a rated perspective. Here we can do a lot of projects, start another shift, all of that to increase capacity, but there is no -- I mean we, whatever else we do has to be profitable and very well understood.
Yes. On the chemical side is where we have idle capacity, which is something that we have to grow volumes to be able to use. I think this year will be the litmus test, whether we are able to do that. I am optimistic and confident that we should be able to grow our volumes this year.
And as we grow these volumes, be somewhat profitable. Yes. And what that somewhat profitability is again kind of something that we need to deliver. But clearly, for this business, [ teams ] profitability and growth is both that is expected, yes, at least that is my expectation from the business. We are far from that right now on the profitability side in the way we finished Q4, clearly.
Understood. The second question that I had was more on the theme of energy efficiency, and how Thermax is kind of placed inside that. And I can see through the waste-to-energy part, I can see through the heat pump part, I can see through the electric boiler part for now.
I wanted to get a sense of how from a bandwidth perspective, are you approaching this theme, and maybe some market size that you are seeing at this point of time?
Interesting. Yes. So waste-to-energy even beyond the projects can -- sorry, energy efficiency, even beyond the products has a ramification for services, has a ramification for digital and in almost a solutions approach and how we interact with our customers. Yes. So I also think there is quite a bit of potential out there and Thermax's understanding of processes across many industries where energy gets used. If we are able to translate that into solutions where we work closely with our customers to deliver certain things. And you will see, I think we have added quite a bit of digital capability. We are -- we -- our product basket is as good as anybody else.
What we need to be able to add is the solutions mindset and then approach very specific key account approach around energy efficiency to be able to win. We are doing that, whether that becomes successful or not. I don't think anybody in India has done something like this. So let's see if we are successful. But I think I agree with you that the opportunity exists.
I think just to rectify slightly better in our head. If energy efficiency was to be classified as a portfolio for Thermax, would the contribution to the overall top line be, let's say, 10% of the cost? And can this become larger and above? If you just give us some sense of how to think about the opportunity?
It depends on whether you take waste heat recovery in which some of those projects is energy efficiency or sustainability and [indiscernible]...
[indiscernible]
So if I assume the first one, we haven't done a [ a cut ] overall. All of those solutions, we bundle as part of our green portfolio. And so the green portfolio, we have been sharing our numbers, which is reasonably a big portion of Thermax overall and perhaps the fastest portion. The energy efficiency and the way you are terming all this pooling and the waste heat recovery-based projects as energy efficiency. We haven't done a math on but is it 10% of our portfolio, I would say it would be somewhere between 5% and 10% of our portfolio.
Understood, sir. Just one last question from my side, and this is coming back on margins. In the product portfolio, which is like for services -- in the product portfolio, can you call something somewhere where that we understand that at the contract level, things are changing. But then there's also a standard boiler in the product segment, which may have long-term contracts, which may be [ price bound]. Are you also focusing on those product segments beyond chemicals, wherein at the contract level changes are being made? Or will you be resorting price hikes the way we have understand around incremental?
[indiscernible] sir, easier to execute. Yes, the first one to say, take a customer in the U.S. who says, I take so many containers per month of your chemicals for the next 2 years, Yes. So those are the ones where increasing pricing has been a bit more of a challenge. The boilers where the delivery is 3 months, 6 months, 9 months, increasing pricing is relatively fast, yes, because you increase your pricing, all new orders that you get in have to be at the new price, even though you execute them over 3 months, 6 months and 9 months, the increasing the pricing is relatively faster. You don't get into long-term contracts for boiler supply. And I think it's 12:30 as well. So let's call it a close now, and thank you very much.
Yes. Before we close, there are -- as from Sandeep on the capital expenditure side on the solar business [indiscernible]. So over the next 1 year, 50 to 100 megawatts, I think we would be planning to put in [ price ] of about INR 50 crores to INR 100 crores on that front. And over a 5-year period, it could go up to about INR 1,000 crores. I think that was the data point that we wanted to share. Thank you.
Thank you. I now hand the conference over to Ms. Bhoomika Nair for closing comments. Over to you, ma'am.
Yes. I would just like to thank everyone for taking time out and being on the call and especially the management for giving us an opportunity to host you. Wishing you all the very best, sir. Thank you so much.
Thank you so much. Thank you, Bhoomika. I wish everyone a very good day and a good weekend. Thanks.
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.