Thermax Limited (THERMAX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Thermax Limited earnings call 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 Limited. Thank you, and over to you, ma'am.

Thank you, Mahika. Good morning, everyone, and I would like to welcome you to the 4Q FY '21 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. I'd now like to hand over the call to Mr. Bhandari for his initial remarks, post which we can open up the floor for Q&A. Thank you very much, and over to you, sir.

Thank you very much, Bhoomika, and a very good morning to everyone that's on the call. I hope you can hear me clearly. I'm on a handset, but I'm told the line quality is quite good. It's a pleasure to host all of you. And I hope each one of you is safe, and your loved ones are safe as well. And we have shared the management presentation in advance. So I hope you would have all had an opportunity to go through this. My plan is to just hit a few highlights, and then open up the lines, spend most of the time on Q&A as has been the [indiscernible] on previous calls as well. I think I'll maybe first talk a little bit about just COVID, what it means. And in no discussion on COVID for businesses is -- can be had without talking about the personal impact that the second wave has had on so many families here across Thermax, across our vendor base, for many of our customers. May was exceptionally difficult. And in many ways, I'm extremely proud of how the team has continued to soldier through. And all our plants were operational, even though at reduced capacities when people were going through so much at the personal front. In just as an example, as you know, most of the oxygen kind of ran out in the second week of May. And when the government said, look, we need the oxygen, we turned out -- turned over even the half empty bottles that we had at all our plants back to the local authorities. And then we found other ways to continue to weld, other place -- ways to continue to do plate cutting. We moved to plasma cutters, we moved to bio natural gas-based and different set of electrodes, all those kinds of things. And the team did that almost overnight, yes. Like yesterday, we were working with a different methodology. The day -- the next day, we knew what we were working on previously wasn't available. So we had to invent, test out, find a new way to work, did all that. Then immediately came the requirement that everyone that works at the plan has to be tested, but there were not enough test kits available. So how do you stagger? How do you isolate people? How do you figure out who is in contact with whom, figuring out micro zoning, our lunch plans went from 1 slot to 5 slots and so that you could make sure that people were -- could be isolated. And you had to know at each point, who was where so that you could always do contact tracing and help. We also worked a lot to make sure that migrant labor, which was badly affected in the first wave, we made sure that we proactively took care of them. So making sure that food packets are available. We created accommodation in places where accommodation wasn't available close to the factory. In one factory, within the factory as well. In other cases, we encouraged through training that vaccines are important, that running away will make it worse. So lot of work went in behind the scenes by so many people that makes me exceptionally proud of what the team delivered in these last few months. I think you will also see some of the things that are easier to talk about, the vaccination camps. And the good thing is we finally see vaccines being made available to industry. So over the next 1 to 3 weeks, we do hope to vaccinate a good chunk of our population with one vaccine, at least yes. So we will be conducting vaccination camps across the country, getting at least one vaccine dose available to majority of our India population. In terms of our numbers, I think they're all there for you to see, and I'm sure there'll be questions about it. In terms of order book, you can see there was more of a recovery from cement and steel in this -- and refining and petrochemical, this particular order, in this particular quarter. But if I look at our overall order book, it is very well spread across multiple segments. And Q4 was also well spread, but some of the segments like cement and steel, in particular, that were weaker in Q2 and portions of Q3, while many of the other segments, pharma, in particular, that was strong at that particular time, you can see our order book is truly broad-based, which is a good thing for the business overall. I think increasing thrust on sustainability, I think in our large boiler business, 2 quarters in a row, 100% of our orders have been in what we consider to be green projects, which means their wastage recovery, biomass, blast furnace gas recovery. So all spent wash, all applications that are either renewable or taking waste into and converting it into something of use, which was interesting, I would say. The second thing I would say is that you will see that even in this quarter, we had -- we did not have a single order that we had to report to The Street as an exceptional item. Yes. So we delivered close to INR 1,500 crores in orders without anything that was even INR 200 crores. Yes. So there was good single orders, but many of them across the company that has really helped us deliver a decent quarter without a single blue bird of any sort which I thought was particularly good, also symptomatic of the broad-based recovery statement that I made previously. So about the business-specific highlights are all is captured out there. And I think as is some of the moves we have made on the technology side, I think -- and we'll be happy to answer any questions. Most of these are too early because they're all relatively new products or innovations that will take some time before they start to show up on the ground. But it's important for us as a company to start moving in terms of new energy in a much, much bigger way. So these are just some small steps in that direction. I think beyond that, all the indicators, all the segment performance, everything is out there for you to see. I know there'll be a lot of questions around trends and how is commodity pricing being affected -- affecting the business, et cetera. All that, I think we can answer as part of the Q&A itself. Happy to -- Rajendran, would you have anything to that?

Not specific, Ashish, I think you covered all the business aspect of it, only from a financial performance front, I think we continue to maintain reasonably good margins for quarter 4, and our working capital performance has improved. I think that is clearly reflected in our numbers that we put out. The cash surplus consequent to the working capital improvement has -- is also an improved level compared to last year. Thank you.

Thank you, Rajendran, thank you. Yes. So look, with that, we can open it up to questions and use that as to share more information.

[Operator Instructions] The first question is from the line of Bhalchandra Shinde from Max Life Insurance.

Sir, regarding order book, overall, our order book have stayed flattish right now. And in this quarter, I think there will be a constraint on fabrication side also because of the apply of oxygen. So do we see executing these orders? Mean, what kind of sales growth we expect in FY '22?

I think you've asked 3 questions. Let me first talk about FY '22 overall, and then I'll come to the short term. I think FY '22, from a sales number perspective will depend quite a bit on our ability to deliver. And our ability to deliver will be limited primarily by COVID and future wins. Yes. I think just like we saw last year, that as the country opened up and in Q4, in particular, but Q3 and Q4, we could increase the capacity utilization and pump out quite a bit. Even in those months and quarters, I don't think we reached the complete potential of what we can deliver. Yes. So I think overall, capacity and capability exists to deliver a lot more. And in places like chemicals, where we were capacity constrained, we have increased capacity, as you know, and that capacity is coming online. So I think it's -- I definitely see Q1 as being challenged because of all the reasons that we talked about. And not because that demand is not there. It is being driven by entirely by our ability to supply. Yes. And -- but if you get good 5, 6 months, we should be able to recover what we have lost in these few weeks of Q1, where productivity was lower than what we would have liked it. So that is to the sales number. Overall, though, I still don't know how demand will also come back. Yes. So demand in -- after the first wave came back reasonably strongly. We finished Q4 where we thought every metric was trending above where what it was before wave 1, yes? So that made us reasonably positive on our outlook. Now where we see we see some of the bigger projects coming up for decision-making because we haven't really if you take a look at the last 6 months, we have had no big projects come up for this thing. There are projects in oil and gas, in FGDs, even in chemicals, which are now somewhat coming to the discussion table, which gives us confidence that over the next 1 to 2 quarters, we would -- we will see some bigger rock projects getting decided. But along with that, we would really like to see the kind of recovery that we have had in Q3 and Q4 of last year, which was a broad-based recovery continue. All of this is a hope. I don't think you can build a company in a -- drive the company on hope. So we are focusing primarily on flexibility, nimbleness, making sure that we have good visibility into the short order and manage the company thereabouts. Yes. So I don't see any major red flags, but it's too early or too difficult to commit to what all of '22 will look like.

Sure. Sure. And second question regarding, sir, commodity prices have been spiked up in the last 2 quarters. And there might be some fixed contracts within our order book. How much it will be? And what kind of a impact we can see over next 2, 3 quarters?

So I think we saw commodity pricing in Q4, we had quite a bit of an impact on -- driven by commodity prices, where I think upwards of INR 10 crores was our impact based entirely on commodity pricing, mix of steel, aluminum, but also in the chemicals business, so styrene prices going up. Even in Q1, we will have an impact of this. I think we wouldn't want to share a number, but definitely, there will be an impact. And the reason I don't want to share a number because we don't know what the overall number for Q1 will look like. And it's not that we don't have plans. We have multiple plans, but the scenario still have variance here. We don't -- we -- if June is completely clean and there is good productivity, then we have one number. If June is completely challenged then we have a different number, and I think the truth maybe somewhere in between. So it's tough to say what it will look like. But commodity pricing has an impact. Our -- the way we run our business, is that can we get an order within the first 30 days, we basically retire the majority of the commodity risk. So our commodity risk is typically open from the time frame of when we receive an order from where we send a quote to a customer, a final quote to the point that we receive an order. So I would say for -- and in -- for our large businesses, we have an open impact of about 2 to 3 months, yes, because that is the period where, for a government project, as an example, we would have submitted a quote, but we don't get the order until a little later. In all other cases, we go back and increase our prices, we go back and renegotiate, we manage with our customers. And our prices in the market are also going up as they have to in the current environment. Some of it, you absorb through productivity, improved utilization, digital, or to further good habits we have cultivated through COVID, but some of it has to be passed on to customers, excuse me, as a price increase.

The next question is from the line of Ankur Sharma from HDFC Life Insurance.

Yes. A couple of questions. One on the order inflows again. And very, very good number actually in the quarter, given the lack of any big sized orders, and you still did about INR 1,500 odd crores. So just trying to understand, of course, leave apart Q1, but with the assumption that Q2 onwards, we see a normalization, do you think you can sustain this INR 15 billion kind of a quarterly run rate maybe starting Q2, Q3 onwards? And more importantly, you did talk about some big projects in oil and gas, FGDs. If you could also talk about any specific projects here, also other sectors like cement, steel, so if you could talk about these core and large sectors as well, how do you see ordering over the course of the year?

So let me first answer your first question. And the answer there would be, I think, difficult to say and difficult to say because I think and I'm saying, I think a lot because as a team, we talk about this a lot, and we read a lot. And the more we read, the more we realize that we don't know everything that is possible. And specifically, I'll talk about the broad-based demand that we have had. Yes, in Q3 and Q4, we were -- we kept talking about look in Q3, for example, that while we have had a recovery, a good portion of it may have been pent-up demand. But then that pent up demand continues in Q4, which is -- which was good to see because Q4, we started the quarter. We were depending -- we were hoping that some of the bigger projects will come through for finalization, and they did not. Meanwhile, some of the -- the rest of it continued to be stronger than what we expected. And then steel and cement started to add capacity. So we had some INR 80 crore, INR 100 crore projects, multiple of them started to -- starting to show up. Which was good to see. Now what we are seeing is that COVID as it's taking us through the country, we have seen our demand from our distributors come down. Yes, Which is a worrying part because in -- after the first wave, the best part was that the recovery was broad-based, and especially in Tier 2, Tier 3 markets. We got great demand from food, from agriculture-based companies, from textiles, variety of other segments. Right now, we see they have slowed down out there. Yes. May was halfway decent. But by the end of May, in June and July, we expect a slowdown based on the pipeline and the opportunity set that we are working on. What we cannot say is that whether that is the impact of COVID reaching rural areas and once COVID passes through, just like it has gone through the big cities, whether that demand will come back or not. Yes. So I think if that demand comes back and it is strong. Then, of course, we can do those INR 1,500 crores in the future as well. But I don't think I have that confidence to commit to anything like that. Yes, meanwhile, we do see some of the bigger projects coming up for finalization and FGDs, for example, which was completely 0 is now finally starting to have some minimal activity starting to happen. And we do think between Q2 and Q3, we will have 3 or 4 major finalizations. We will also see whether we win or not, we can't say, but we at least start to see those being finalized. Similarly in oil and gas and refining, all the government companies that were slow because of COVID, they're all kind of taking the projects that they had put on hold because of lack of people availability. All of those have started moving again as well.

Okay. Fair. Very helpful, sir. Sir, secondly, on the energy business margins, right. I mean, again, for the second quarter, close to about 9% EBIT margins is what we've seen. Again, leave apart Q1, but if you had to look at it over a year or over the next 2 years, what's the kind of margins that you're looking at in this business at the EBIT level?

Look, I think we understand the margins had come down in energy. Part of it, I think, has also been the additional depreciation that we have had to accommodate for the 1 plant that we acquired in the recent past. So I think we -- there is nothing more to be said other than that we are focused on improving the margins at our plant and overall, in the energy business. That margin is dependent not only on us it is also dependent on commodity pricing and competitive reaction in the commodity pricing. Yes, both of these 2 factors are not entirely in our control. But in terms of cost management, making tough decisions, cutting down our losses all of that, we will continue to do. Yes. And even in the last year, you saw, we executed VRS. We have taken hits on couple of our international businesses, where we thought a hit was merited. We have also used that as an opportunity to cut costs in some cases. I think all of that is good. But we have this headwind of commodity price increase which I think is something that we are all battling through. So I'm sure you're looking for a clear answer. I don't have a clear answer to give you. But I have to talk to you about the metrics that we are looking at and managing. Rajendran, would you want to add something?

No, I would only -- not much, but I would just like to add that this year, we've also had a good amount of expense control. And with our factories working to full capacity in quarter 4, the output has been good. The expense control has also been helpful during this COVID times. And I think that both of these are also definitely helping improving our margins. Thanks.

Fair. Good to know, sir. And just one last one, if I may. On the refining CapEx and slightly longer-term over the next 4, 5 years, what we understand is HPCL talking of no more new refineries post Rajasthan, VP, again, with the divestment and new owners not too much of refining CapEx there. I think IOC probably is doing about 3, 4 locations, but that's I'm hoping pretty much it, right? So from a slightly longer-term 4-, 5-, 6-year perspective, do you think the filing CapEx is well maybe on a decline and maybe something which may go the coal-fired plant way, where you may not see too much of a refining CapEx or new capacities coming up?

I think in general, I would agree with you. I do think refining at least if somebody would have asked the question 3 years ago, we would have said there would be India's kind of oil needs will grow 8%, 9%. We will continue to need a new refinery every couple of years. I don't think I would be as bullish today, yes. So refining for diesel, for gasoline, for jet fuel, I think demand will continue to grow. I do think there are a couple of more projects that are planned, but it will not be to the extent that it was before. Yes. And I certainly don't see some of the biggest names in India going forward with projects that previously even 1.5 years ago, they would have said they will go forward with. But that, by itself, does not worry me entirely because, really I think as a world, we all have to be clear that the energy footprint and the carbon footprint and the energy efficiency, both of these are something that is very important for our planet. And so things have to change. The question now is how will things change? Yes, which means if India now has to replace that demand for all of those fuels with something. And that's something if it is hydrogen, then that whole hydrogen economy creates a whole different set of new projects, yes, because you will still need chemicals. You will still need end products. You will still need everything that you need, you still need tires. You still need pharmaceuticals. You still need petrochemicals. So all of that has to come from something. So whatever that something is has to be something that Thermax can align well with. Ultimately, in all of those processes, and I would say with some amount of it, yes, because there is technology being looked at, where the entire process themselves changes. But in most of the other ways, the look is in terms of what will that refining get replaced with? Yes. So it will -- you still need heat, you still need steam and what Thermax has to do has to be ready for whatever that new world looks like. So I think in general, I will agree with you. And I think a 6-, 7-year time frame is a better time frame to take because the next 3 years, could still be surprising -- could be decently bullish, not just for India. There are some new projects even outside of India that are being planned. I think they will go ahead. But if you take a 5- to 10-year period, I do think many of these segments and industries will change forever. I would agree with that.

[Operator Instructions] The next question on the line of Nitin Arora from Axis Mutual Fund.

Just on one of the projects which is mentioned in your presentation about a greenfield supply taken on a Build-Own-Operate model. Just one clarification I need. Have we taken this asset on our balance sheet?

Could you -- if you would -- I think sir, your question is of the Build-Own-Operate project and whether the project has been taken on Thermax's balance sheet?

Yes, yes. Yes.

So it is taken on the balance sheet of a wholly owned subsidiary, TOESL, which is Thermax On-site Services Limited. And yes, it is in fact last year, Build-Own-Operate was one of our fastest growing areas, where we have executed our highest ever order book for -- and all of these projects are long term, on average, 10 years contracts, where we commit to the customer to provide utility as a service, whether it be steam, whether it be water, whether it be both power and steam in cases. That's the project. And it's -- yes, it's on Thermax's books overall through our wholly-owned subsidiary.

Yes, sir. Sir just one...

If you can speak a little louder, Nitin.

Sure, sir. Sir, I'm audible now?

Slightly better, yes. Yes.

So basically, the question just carrying on the momentum, what you talked about on the orders. So if I -- if one has to look the broad-based recovery, the term which you used, if I look at your cement, your refinery and metal is still about 50% of that backlog and assuming rest of the sectors are any which ways makes gas which generally comes as a recurring base orders every year. In the 3 segments, which is cement, metal and refining, where do you see more growth coming in? Because this question have been asked to the earlier management as well. So cement has tripled its capacity, whereas our order intake has been in a -- last 8 years has been at the similar range. So obviously, some sectors goes down, some goes up. So generally, in your view is it -- when we talk about the large project if we leave aside the cement, any other sector you think which can grow much faster here and where you expect a better recovery because I'm asking you because you used the work called broad-based. And you say broad based, and I thought they would be -- we will -- as a Thermax we will be trying to grow more than what we have grown in last 8, 10 years, a INR 6,000 crore authentic company eventually. So if you can throw some light on that, what's your plan there? That would be helpful.

Sorry to interrupt Mr. Arora. Sir this disturbance is coming from your line. [Operator Instructions]

Sure.

Thank you. I would say, if you take a look at Q4, you will -- you're right that cement, steel and refining are particularly strong, but that wasn't the case in Q2 and Q3. Yes, Q1 was practically nothing. But -- so I would say that if I look at our backlog, it is less driven by big projects, less driven by one-offs than it has been in the past, which is, I think, something that is clearly borne out by data. It's not a conjecture in that sense. As I look forward, though, I will say that there is uncertainty. Yes, I would like nothing more than the broad-based recovery that we have seen previously in India to continue to hold, yes. But we don't know whether that will happen or not. The other thing I will say is that you take a look at even cement. Cement is, as an industry, also has changed quite a bit in whereas previously, if people would have put up a cement plant. Most of them would have put a captive power plant, which would be coal-based, which will have its own boiler and auxiliary boiler and everything else. And the paraphernalia that goes with it that's not the case anymore. Yes, all majority of the projects that we have had are wastage recovery projects, which is to improve the efficiency of existing cement plants. Also, where people are looking to add capacity, they are not looking to add capacity the way they used to in the past because the entire power plant is changing. In many cases, people are shifting to the grid. And even if the grid power is slightly more expensive in a way to reduce their carbon footprint or whatever the case maybe they are looking at alternate ways to manage them. Yes. So the -- I would say, a, the nature of the industry themselves is changing, b, the kinds of projects we are getting is also changing. By the way, that does not worry me entirely yes because when things get more difficult, which means you have to provide higher efficiency where you have to do a complex application. Many a times, Thermax really stands out because we have more capability to do difficult applications based on our history and just the nature of the company than many, many others. So that by itself does not worry us yes more times if there is multi fuel complex requirement, you need to manage perhaps a very complex set of inputs and outputs, typically, Thermax has more of an ability to stand out. So I think that's how I would answer the question. And I would really, I think, to know what the future will look like and whether the recovery will be as strong as it was after first wave. I think all of you would based on your connect in the industry, based on everything you will have, you will probably have a better look and a better idea than I would, honestly, I would say that.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Congratulations for good numbers in a difficult period. My first question is just a clarification. Page 6 of the presentation order book breakup by end user. Is that the breakup of order received or the order book, which is at the end of the period?

Yes. If I might answer that. That's for the order book, that is the order received.

Okay. And would it be possible to share the -- a similar breakup of the outstanding, as you highlighted, there is a wide variation quarter-over-quarter?

The breakup of the order balance, I think that will be a large exercise for us. We will see, I think whether we are able to make the disclosure.

Sure, no problem. The second question is continuing in the previous part of the friend's question. As you highlighted, waste heat is a big opportunity for both steel and cement, would it be possible to share what is the current level of penetration in the existing plants that you would have done an exercise? And what is the opportunity that you see for waste heat in both steel and cement?

I would say, we have those numbers internally. And some of that is competitive information. So we would not want to share the exact numbers. The cement waste heat recovery overall in India is getting closer and closer to full penetration. Yes, the new plants that are coming up will all need cement waste heat recovery, for sure. Steel, there is still some way to go. But in cement, I think most of the major plants now have in their existing plants have waste heat recovery. I would say while India has good penetration in waste heat recovery. That's not the case throughout the world. Especially in Southeast Asia and Africa, there are many, many plants which are -- which don't have waste heat recovery. And so it's not like just because the India cycle goes away. There is the -- the application does not have room to run in other places. We do think as the focus on the environment and focus on efficiency increases this is an application which will be demanded in -- by more and more customers internationally as well.

And about, steel?

Steel has some way to go, but steel also depends because you have a lot of smaller plants where the size of waste heat recovery is not like -- not to the extent that you would see in a chemical plant where the application is relatively more standard. Yes. And so I think steel has some more room to go, both in India and outside. But it depends whether these plants themselves will go forward and execute those projects or not.

Understood. The other question is the margins front, you saw a dip in the margin sequentially quarter-on-quarter versus Q3 in the chemical segment. Sir, what should be the sustainable level of margins that you would expect in the chemical segment?

I think when the margins were very high and most of the analysts were asking us, can we sustain 25% and beyond and all that. We had said even then that, in some ways, we -- overall, the margins in this segment are still higher than what our historical mean has been. Yes, and this is in an environment where styrene prices have gone up quite significantly. So some of the investments and capabilities that we had done on the specialty chemicals side, which overall gave us slightly higher than traditional margins, you would have seen even during Q4, which was a tough quarter from a commodity price perspective. Not just that, Q4 also, we had logistical challenges where we could not ship containers, et cetera, on the chemicals side. Yes, so when margins were very high, we were already telling that, look, we don't know if that is sustainable because in Q1, Q2, the styrene prices were at historically lows, now they are closer to all-time highs. So I don't know what the future looks like, again, if it goes higher, then our margins will come down slightly even more. Some of it, we will pass to -- pass on to our customers. Some in cases where we have long-term contracts, it may be tougher to do it because we're also in a competitive world, where you are also dependent on how your competitors react. And it's important to keep the plants operational as well. So again, kind of, I'm giving you an answer where I'm hedging my bet. I would say where you are right now, we would like to be able to sustain those levels for sure.

And the continuing question on the...

Sorry to interrupt Mr. Vithlani. Sir, I would request you to rejoin the queue for follow-up questions. The next question is from the line of Jonas Bhutta from PhillipCapital.

Congratulations on a great set of numbers. 2 questions, sort of longish. Sir, just wanted to understand on the energy segment side, sir, given that bulk of your order inflows this quarter have been sort of stand -- less than INR 100 crore order value average. I wanted to understand what portion of our revenues or order book currently or order inflows come from the standard products business? And this question is particularly to the energy segment. And what was it about 3 years back? And have you seen some marked improvement because on lack of large orders being there in the market? And whether this you expect that over the next 2 to 3 years, this sort of proportion of sales from the standard product continues in light of what you just mentioned where you expect orders to pick up from oil and gas, FGD, maybe even food, pharma and what we are seeing on ethanol blending and stuff like that? So the long sort of this is what should we see as standard sort of sales a percentage of sales for energy over the next few years? That's the first question.

Okay. I think -- and thank you, yes. I think it's a very good question. One, we talk about, and it's an area of focus for us as well. And the way I would answer your question without giving specifics, is that we are roughly 50-50 between projects and what we call as products and services. And things like chemicals, we put as part of the second bucket, all of our large boilers business and everything that we do in EPC comes as part of the first bucket which is the project. So we are, give or take 50/50. Overall, in the last 3 years, if you take the projects business is very cyclical, yes. So any answers I give you is averaging out that cyclicality. Typically our services portion, which we put as part of products and services has grown faster. Our products have not grown as much as we would like it to be, yes. As we look forward, what we -- we do not really look at how products do relative to projects because it's very difficult to look at that number because the single -- you may think you are doing well and then a single big project order may skew your number entirely. Yes, so I don't think that's the right way to look at it. What we are looking at is and monitoring ourselves very carefully on is sequential growth in both products and services. Which means we would like more and more of our products and services to continuously grow, irrespective of the economic environment and projects, we have the capabilities when it comes, it comes. But otherwise, we continue to focus and make sure that our products and services, we continue to build on it and grow. So that's a better way to look at it. Have we delivered that continuously in the past? Maybe not as much as we would like. Is that a big area of focus for us? Definitely. Do we see we are working on that and that improvement is showing? I think the broad-based recovery is some sign but I don't think we can rest at all here. We have a long way to go out here and the recovery shouldn't lull us into any point of confidence at all. Yes. And also, as we keep saying the world of the future will be driven by data, will be driven by services so we need to be able to do a lot, lot, lot more in many of those areas going forward. I think at this particular point, this is as much as we would be able to share, and we will not give a breakdown of how much is services specifically within products and services. Sufficient to say that, that is a portion that we want to grow the fastest.

Sure. Sir, that's helpful. My second question is on the new the initiatives that you highlighted in the presentation, while you clearly said that these are very nascent at this point in time. But just wanted to pick your brain on 3 of these things, sir. Firstly, the tie-up with SB, we always believed that sort of Thermax shies away from any direct business with municipal local bodies. So while at the outset this business looks focused towards that end market, can you just elaborate on what is the mode of business that you thought about? How are you going to approach that market? Or is there a change in strategy about dealing with municipalities? That's the first one. The second one, sir, on the hydrogen bit. Which is where we've developed that 5-kilowatt fuel cell for CSIR and also you have worked with DRDO. Just wanted to understand, when you have to commercialize this to, say, megawatt size units what are the key milestones or challenges that you think we'll have to watch out for and the time lines there in to sort of get to this level of having a product ready to offer to the market. And then waiting for the market to sort of pick up. So this is a gray area for us right now because I don't really know what's happening on hydrogen while globally, there's a lot of noise. From these 2 things, if you can highlight your view and the solar film business, again, the applicability in the Indian context.

So you've had 1 question. It's 3 questions, so I'll try and answer all of them. First, in terms of the municipal business, there is no change. Yes. It's not that we don't work for government. So much of our business is some ways, one way or another depend on companies that are owned by the central government. And even in cases, state government, but directly dealing with municipalities is something we have stayed away from. And even in waste-to-energy, the idea is not to deal with the municipality. There will be a project developer for whom we would be executing the project. We do expect that this would be a true localization, which means the partnership will help us so far, so many of the waste-to-energy projects in India, unfortunately, have been done by Chinese -- through Chinese technology and which I think from an Atmanirbhar perspective from so many other ways also is something that the country needs to change. So we do expect that through this initiative, we would be spending quite a bit of our report on localization. And I would say the whole waste-to-energy market itself in India is also nascent, yes, because the policy also has to change, the current pricing that the government provides to developers is not sufficient to make these projects viable and because the entire social cost of these projects is not accounted for correctly. Yes. Very clearly, the power that comes from these projects has to be higher because the power not only -- it cannot compete with a coal-based project, but the idea of these trash -- of this trash really hurting the environment, hurting people making our ground water worse, the social cost of all of that is multifold of the cost that the price that the industry is demanding for this segment to be successful. I do think that will happen. But it does depend on our policy keeping in touch with what is happening the world over. But we expect to work with developers, not directly with the municipalities. We don't plan to be a developer after all. So that's the first question that you had. To the second question on fuel cells, not just fuel cells here. Look, right now, the world -- India, as it looks at hydrogen. We have about 15 new technologies that India will have to look at. Yes. Everything from solar to batteries to fuel cells to methanol reformers to coal gasification to syngas to methanol blocks to new ways of doing chemicals to biofuels, you can name 15 different technologies and even within these technologies, like if you take fuel cells, you could have a solid oxide, you can have PEM, PEM can be HTPEM, LTPEM, batteries can be lithium-ion based, now there is sodium ion-based, grid scale. So there is just humongous change that is coming in the -- on the energy front. So what we have is -- what we have commercialized or close to commercialize for the defense is a phosphorus asset-based fuel cell, which is good for the sizes that we are talking about. It's also a very stable technology, which is what the industry needs because it's defense. You cannot have -- the technology itself has to be very stable, and we have been testing it with the defense and with the navy for quite some time. So in that sense, this particular product is close to commercialization, but this is not a product which will be used by mobility or will be used in other places. Yes. There, you will have to go to different technologies. And you would have seen previously we had talked about, and there was a press release also where we got an award for our HTPEM technology. But I would say that whole area of fuel cell, I don't think we will have anything ready for commercialization in the next 12 to 24 months. Yes, there is a lot of work that has to be done, not just by Thermax, by many people in the industry to hit some of the price points that are needed. And these are all ecosystem bets, where you can't be working in unison, just like in the case of the defense application, we were working with L&T and with the Navy itself to manage. Similarly, we will have to work these as ecosystem based. I would say it's a big area of focus for us. Cannot commit to what it will look like. Yes, and as I said, it's not just one, there are like a dozen plus new things for Thermax to look at. And many of these will be done through partnerships. One such area is on the solar front, where we think technology is changing very rapidly, both on PV side, but also on some of the thin film side. Yes. On the thin film side, the challenge that you have is, what you have a thin film solar today is actually expensive solar. Yes, because the price point of some of these thin films and the efficiency that you get is not very good, which means the thin films are limited to a very small set of applications. We think technology exists where -- and these are all new things here. So there is a technology risk with every one of these things that you can come up with new spaces because solar is something India will need in lot of different forms. Yes. And just like when once a technology starts to mature, it will have lot of different sub-segments start to open up. We think there are several very good subsegments opening up in solar, where one of these segments, which is sufficiently large, is where we think the partnership that we have done, which will take us at least 1 year to just indigenize the technology itself, yes, and it will come with its own risk. So it's at least 18 months before we will have a commercial product ready for the market. And we will be doing a lot of work in the interim period because we think the technology is very exciting, where we will be going through testing the technology, then if the technology tests go well then setting up a manufacturing plant. The manufacturing is also not trivial. So then that plant will take some amount of time to stabilize. So it's 18 months before we can say with confidence. But with every 6 months, we can come back and say, look, are we moving on the track that we thought we would be moving. So a long answer to your 3 questions.

The next question is from the line of Renjith...

Sorry, before you ask the question, how much more time do we have?

Sir, I think there are about 10, 12 questions. And I think we have time till 12:30 if I'm not wrong?

Okay. So 12:30, I think right before 12:30, we'll take our last question. We'll stop a little after 12:00, 12:30. If that's okay. Okay?

Sure.

The next question is from the line of Renjith Sivaram from ICC Securities.

Congrats on a good set of numbers. Sir, if we look at the overall performance of the subsidiaries because last time we had concern regarding Danstoker so how have the subsidiaries performance come up? And what's the outlook over there, do we see things normalizing because the impact of second wave is limited over there. So what's your outlook there? And what do you expect from this?

I think 1 more broad question. We've been very open that 2 of our international subsidiaries specifically Danstoker and then the -- our plant in Indonesia, both for different reasons, are continuing to be work in progress. Q4 was, again, not a great... [Technical Difficulty]

The line for the management is disconnected. [Operator Instructions] Ladies and gentlemen, we have Mr. Ashish Bhandari, reconnected to the call. Thank you, and over to you, sir.

Thank you, everyone. And my apologies, the line just disconnected. So I'll continue. I don't know how much you heard, but I will very quickly mentioned that in Q4, I don't think we saw anything that both of these businesses are back on track. And we can't say that they are back on a -- any sort of a growth trajectory. The fact that we have not been able to travel, not only that in places like Indonesia, where the factory leader had to go from India, the person took nearly 10 months from the time we made the decision for him to move and then he could actually get in Indonesia. And he landed in Indonesia and Southeast Asia was going through its own second wave and visiting problems and all of that. So it's not that everything has been under our control. There are things that we want to put into action. But it has been quite challenged to execute those because we just haven't had the feet on the street either because of all the COVID challenges. So I would say Q4 was not as bad as maybe a couple of other quarters in the year. But I don't think we have confidence to say that we have entirely turned the corner. At least in Denmark, in March and in April, we started to see a recovery in the order book, which I think is a good early sign, but it's too early to say if that is completely a trend that is now reversed too early to say. I think in Indonesia, we do expect demand will come back. Then the question is what our win rates will be. I think we are putting a lot of time and energy in building local sub suppliers, bringing our cost of production down, becoming a truly local company. And focus is more on making sure that whatever we deliver is of the highest quality. So for the short term, our focus is more on making sure that customers become fans of Thermax, which means even if we are slightly delayed, even if our cost is higher, we want to be sure that our quality is really, really good because we are there for the long run. So I think my answer to you is these are still -- both of these are still work in progress. Both of them are something that we know and we realize we have to improve. Some challenges. Some signs of recovery as well, but too early to say if we have really turned the corner. Rajendran, would you have anything to add?

None beyond what you have said, Ashish. Thank you.

Sir, and next I just would like to know what is the contribution currently...

Sorry to interrupt sir. I would request you to rejoin the queue for follow-up questions. The next question is from the line of Sandeep Tulsiyan from JM Financial.

Yes. My first question is pertaining to the Chemicals segment. A couple of years back, we had shared the breakup between specialty chemicals as well as resins was 50-50. Of course, you highlighted in the presentation that specialty is growing at a much faster pace of 63% last year. If you can share what is the current breakup? And how do you see the mix evolving between these 2 subsegments of chemicals? And second question is pertaining to the enviro segment where ex of the FGD orders when we had in the order book, the run rate on a quarterly basis used to vary between INR 180 crores to INR 200 crores, which have got stepped up in the past 2 quarters. If you can highlight how much of FGD order revenue was booked in FY '21? And has this run rate improved from that INR 180 crores to INR 200 crores band where we were operating?

Okay. 2 good questions again. On the chemicals side, I will give you again a slightly longer answer. I mean -- and you asked a question on specialty chemicals. On our resin side, we have specialty and then not specialty on the resin side. And then we have a water chemicals business. And then we have construction chemicals, and then we have oil field chemicals. Yes. So our 4 major lines of business or all 4 set of products that we have are resin, which is -- a portion of which is specialty. We have water chemicals. We have construction chemicals and oil field chemicals. The 2 biggest portions of these business are water chemicals and the resins business. And of which, the single most profitable portion is the specialty resins, but even water chemicals overall is reasonably profitable. Currently, our focus is on growing both of the which is the water chemicals and on the overall resin business. Within the resin business, because we have added capacity in the short term, we think that the -- while the absolute volume of specialty chemicals will continue to hold steady and grow slightly. We -- because the initial -- we -- first our focus is to full up the plant, the overall resin number where the nonspecialty resins grow faster will be seen in the short term. Over the long run, we continue to feel that specialty chemicals, if we do everything right, should grow faster. Yes. Not just that, if you can take a look at, I mean, even right now what is going on in the pharma industry as an example. I do think India too will require more and more capability on the specialty chemicals side, and some of which, if we are able to connect the dots when, are things that Thermax too can take an advantage on. So what I mean by the long run is more a 2- to 3-year period. We do you think specialty chemicals over that period will continue to be the fastest-growing portion within Thermax. But in the short term, I do think as we fill the additional capacity that we have, that overall resins will grow, we expect to grow faster. But we don't -- look, all of it will depend on as we work with customers, as our capacity stabilizes, what kind of, et cetera, et cetera. Our focus right now is to grow all of these because all of these are ultimately accretive to Thermax as a whole and are profitable. So that's the first question. Specific to FGD, I think when we have seen this broad-based recovery, it is true that our Enviro business has had better than an average run rate of business because we have seen, overall, customers have looked at pollution control in a positive frame in this current period. And as I said, this has been across multiple segments, and this is a good example of broad-based recovery. We have had no projects at all from FGDs in India. Yes, maybe 1 or 2 really small like changeovers and, et cetera. We had 1 international FGD order, which was less than INR 100 crores, but nothing from India, yes. So the India, the big FGD projects we are still waiting. And -- but we have seen some of them getting closer and closer to finalization. And as we win or not win, we will come back and share. I think on the overall Enviro business outside of the FGD, whether that broad-based recovery will continue or not? Look, I think I'll come back to that same initial point that I make, whether -- I don't know if after this second wave, will the recovery be as good as it was after the first wave. Yes. And I think I'll leave it up to all of you to answer that.

Ashish. Sorry to interrupt. My FGD query was pertaining to what 2 orders you already have in the book...

Sorry to interrupt sir. I would request you to rejoin the queue, sir.

Okay. Got it.

Sorry. Is the question on the back -- sorry okay backlog...

Whatever FGD was there, how much revenue has been booked on those 2 projects is what I want to know.

Okay. Rajendran, can you answer that question?

Yes. So if you're looking to understand how much of revenue has been booked of the FGD businesses we have booked in the past?

Yes.

Okay. So we would have booked roughly about INR 100 crores in this financial year.

Roughly more than INR 1,000 crores or close to INR 1,000 crore that we have...

Yes, about INR 900-plus crores was the order book on the 2 orders. So we have booked about INR 100 crores this financial year.

The next question is from the line of Himanshu Upadhyay from PGIM Mutual Fund.

Yes. See, I had a question on -- in our last annual report, we have mentioned that we have 547 chillers online or brought online for remote online system. How has this figure improved? And what is the penetration level within our own manufactured chillers? And how large can be this figure? Also, are we connecting third-party manufactured chillers and providing AMC type of service or not? I mean some idea and what progress have we achieved in last 1 year?

Okay. So I don't know the number exactly what the total stand. But I do know this year, we have added more than 100 new chillers onto what we call as part of our remote monitoring. And the penetration overall of our installed base of our operating installed base for this remote monitoring capability would be more than 80%. And through this past year, there has been some really good stories where our international customers because our chillers and our absorption cooling business is one of the most international businesses that we have within Thermax, where our installed base outside India is actually more than what our installed base in India is. And many of those customers, we were able to support only because of this remote monitoring capability. Yes. So it's been seen something that has been helpful we continue to grow it. Remote monitoring, doing more the data across -- and I think I'll go back to that whole services and products business and discussions that we had without giving any numbers. Overall, it's something that we can do better on. Yes. How Thermax manages data. I think to your question on third-party or not, within chillers, we have no third party equipment being monitored. In the rest of the business, will be -- is that something that we have the capability? Of course, we have the capability to. Is that something that we are doing a lot of. Not today. Is that something that we would like to do in the future? Yes.

Okay. And one question on chemicals business. There are many small companies in the chemical domain. And we had written in last annual report about M&A opportunities in chemicals business.

Sorry to interrupt Mr. Upadhyay, sir there is a disturbance coming from your line while you are speaking.

Yes. So I'll repeat it. In chemicals, there are many small companies in the chemical domain. And we had written in our annual report that we'll be looking for M&A opportunities. The purpose of M&A would be to add new products or get more customers in various industries and geographies for us? If you can just throw some light on this? And how is the thing happened in last 1 year on this side?

So I think in overall, we would like to do, and you can see we have been lot more active. And by -- I said business development opportunities, where we are very open to partnerships doing alliances, doing in some cases around technology, M&A as well. But in all of those cases on technology, we would like to see clear enhancements to our existing portfolio set. Yes. And that we haven't really seen any -- very good candidates here, a, the multiple for what many of the chemical companies in India have expected are extremely high and we are too good in that sense. And internationally, we were -- we had very narrow -- 2 specific areas where we are looking for M&A activity. I would not want to share what those 2 areas are. They both relate to increasing our market access in couple of very, very specific geographies. And as those become available, it all depends here. We are not -- we're going to be choosy. We won't be indiscriminate. As any of those become available, we will be more than happy to come and share that progress with -- but don't expect like a really big M&A and or something that will even add 10%, 20% to our chemicals business, it will be relatively small if they happen and something that is -- that we can then add incremental and continuous capability.

The next question is from the line of Jeetu Panjabi from EM Capital Advisors.

Thanks, Ashish, for a great explanation. I've got 2 very big picture questions. It seems like, at least for the whole CapEx-driven businesses, this is the first time after many, many years of a long drought, there's tailwind coming in. So what's happened so far has been a function of talent and hard work, but there's no real tailwind that's come in. The question is, one, do you really expect this to play out? And I'm not looking at the next 3 or 6 months, I'm talking about 2 to 3 years. Do you really expect this to play out? Second, how do you think it would be different if it plays out where to CapEx I could play out? And three, do you think the competitive advantage you have or the weaknesses you have are going to have a role as this plays out in the sense, do you think you'll have a fair chance to win relative to competitors, and that could give you some really fantastic numbers and profits?

A leading question, I would say. But I would derive my answer on the first part, I think it would not be proper for me to say and what we had seen in this last 1 year that even the best analysts whatever projections, et cetera, many of them have had have come to not speed through. Yes, like first, the doomsday projections, then kind of how quick the recovery will be once the recovery happened, how good the recovery will be in the second wave, all of that. Yes. So I think I have said that previously in my discussion as well that they are thankful for the kind of recovery it was we will not be looking too far ahead in terms of is the cycle going to be 3 years, 5 years, whatever, I think I've been very clear that our focus is on making sure that the things that we can control, which are on the products and services, on some of these new energy elements, all of these capabilities and making us very resilient in continuing to invest and getting better and better at those areas because to the question that was answered previously, that in that 5- to 10-year period, we do you think the nature of energy will change quite dramatically for world over and even in India. Yes, so our focus is in making sure that we are ready to win and at least retire some of the risks that we have in the business for that particular period. So I think that's how I would answer. Our competitive strengths and weaknesses, I think look our competitors are very, very good at them. Yes. So it's not like we have some dramatic capability that none of our competitors have or a cost basis, which is particularly differentiated by means. What we do have, I think, is that when the application becomes more challenging, Thermax' ability to deliver that application in a better way and in a more -- in a way that customers trust more. Yes, which means when that something like waste heat recovery which is a relatively decent application to talk about, but it's not cut and dry. Yes, the -- it is an -- it is something that you retrofit. It is something that you have to go and -- the guarantee itself is not exactly can be proven out because it is dependent on waste heat recovery itself, and it's dependent on a -- it's a byproduct process effectively. In lot of these kinds of things where customer is saying, okay, I'm running coal, but tomorrow, can I mix it with coal gas or can I do spent wash. In many of these cases, we do think customers trust Thermax more yes, because of our ability to not let go and our ability to continue to deal with the customer for a very long period of time. I also think when customers look at services, customers look at build own operate model, they will trust Thermax more. We also have the capability to bring financing into play in a much better way than some of our competitors. Yes. We have a strong treasury. We have got a lot of weapons to come to bear in some of those differentiating offerings. And we do think there the market is changing somewhat, and the customers are lot more amenable to doing utility as a service going forward because some of these are also dream. They also require the same technologies. I think we don't talk about it much, but we are one of the largest biomass solution providers in India. And in part of our build own operate, almost -- I mean, a majority of our portfolio is based on biomass. Yes. And so we touch biomass, which all across India in a way that few other companies in India do. So all of that is credit to the execution capability of Thermax. I don't know if that is by itself going to give us great upside. I think it gives us confidence, but it means we have got lot, lot, lot more of other things to do to be able to continue to deliver. Last question guys.

The last question is from the line of Nitin Arora from Axis Mutual Fund.

Sorry, I think the question left in between what I asked you. So you gave a fair amount of the opportunity in the waste heat recovery part in cement. So the idea was that because the kind of value you're getting from a captive plant going to waste heat recovery your value goes down but I understood the point what you're trying to make is that overall opportunity goes up. But the question was more from because when you look at the 5 top players in cement, which is 70% of the capacity, they already reached a 50% WHRS. So -- but I got your point. The question now is, sir, when you talked about you articulated your new ventures there, I -- and on a macro side, you articulated that. If one has to boil down towards the R&D of that, I'm not talking about the JV, what you have done in the waste to part -- in the waste energy part. I'm talking about more of hydrogen and fuel cells. When we look at globally, companies who are now commercializing the product. If I just add up their R&Ds in the last 4, 5 years, they spend almost what is the PAT of our company on an annualized basis? Can you throw some light how we will do the R&D part, what sort of strength in R&D we will eventually put? What's the spend we are looking to do it in the next 2, 3 years to actually let this commercialization happens because the end market, how will it react, nobody knows it, but just at your end, if you can throw some light on that.

I think and that's a good last question Nitin yes because it brings forward some of the most important decisions in some ways in front of Thermax. In all of these cases, whether to build our own, whether to take somebody's technology entirely and become the Indian manufacturer of that, become something in between where you take a technology license and you are able to build on that. All of these are decisions in front of Thermax. And right now, I would say, we have a typical team looking at all of these options. I would say our investment from a rupee portion is definitely much lesser than any of the global guys. Yes, completely. Clearly agreed. And in many cases, there are startups, which are -- which have $50 million, $100 million of funding going for just one of these application spaces. But I would counter that by these 2 things. First, for in our case in at least the fuel cells this has been work in progress for in 9 years for us. Yes. And in all of these cases, we have been working not just with Thermax' own capability, but also we have had funding, et cetera, available from the government, and we've been working with some of the best Indian institutions in terms of getting our technology thus far. Yes, which means our understanding and to be able to provide an end product in that sense, which is being tested for a really tough application like the navy had put forward. It shows at least some capability that we can put the entire solution together, we understand all the building blocks very well. We understand some of the technology packages. That has been I have been very clear that if we do everything on our own, I think we are far, far away from commercializing a product in the near future. So we have some very difficult decisions in front of us, some very good decisions I would say because it's not like anybody else in India has figured that out. Yes. And for India as a country, to figure this out will be very important. So I don't know what the future looks like. I think over the next year, I hope I can give you some more clarity. And you will see these are moves that we make in the industry as well. All options are on the table. There is no sacred cow out here. And I don't know what the future looks like honestly..

Thank you. I would now like to hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors for closing comments.

Yes, sir, thank you very much for giving us an opportunity to host the call and giving your insights on how we are looking at Thermax. So wishing you and your entire team, all the very best. Thank you, everybody, for being on the call.

Thank you very much, everyone. I hope you continue to stay safe, and wishing you a very good rest of the day. Thank you so much for spending the time with us today.

Thank you.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.