Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Thermax Ltd (BOM:500411, Financial) has a strong pipeline of large projects in sectors like refining, petrochemicals, and power, indicating potential future growth.
- The company's chemicals business is showing signs of recovery with a significant increase in the order book and plans for long-term growth.
- Thermax Ltd (BOM:500411) is expanding its product portfolio with new launches in electric boilers, electric heaters, and hybrid heat pumps, which are gaining traction.
- The international business pipeline is recovering, contributing positively to the overall order book.
- The company is focusing on high-margin segments and has shown improvement in profitability in industrial products over the past few years.
Negative Points
- Thermax Ltd (BOM:500411) faced significant operational challenges in Q1 FY25, particularly in the BioCNG and FGD projects, resulting in substantial financial hits.
- The BioCNG business has been problematic, with the company taking a hit of over INR 100 crores due to engineering and execution issues.
- The FGD projects continue to be low-profitability and have faced delays and cost overruns, impacting overall margins.
- The industrial infra segment experienced a tough quarter with unexpected losses, affecting the overall financial performance.
- The FEPL (First Energy Pvt Ltd) business is expected to be loss-making for the year due to project delays and lower-than-expected production from wind and solar projects.
Q & A Highlights
Q: What is the outlook for ordering in key sectors like metals, steel, chemical, and refinery over the next two to three years?
A: Ashish Bhandari, CEO: We expect a positive outlook. Recently, we reported a significant order of INR500 crores-plus. We anticipate more large orders, particularly from refining and petrochemicals, over the next two years. The power sector is also developing rapidly, with thermal projects coming back faster than expected. Overall, we are bullish about entering a phase where bigger projects will be back in play.
Q: Can you provide an update on the chemical business, especially regarding the delays due to inventory destocks in transit to the USA?
A: Ashish Bhandari, CEO: The supply chain has stabilized, and we expect the connection between revenue and orders to stabilize starting Q2. Our Dahej plant is filling up well, and we are confident about the business outlook. We are also investing in adjacent businesses like construction chemicals, which are showing promising growth.
Q: Can you elaborate on the losses in the industrial infra segment, particularly in BioCNG and FGD projects?
A: Ashish Bhandari, CEO: This was a tough quarter, with significant hits from BioCNG (INR45 crores) and FGD projects (INR8 crores). We have taken a conservative view to account for future losses. The BioCNG business faced engineering challenges, but we are confident in our long-term capability. The FGD business has seen delays and additional costs, but we are working to rectify these issues.
Q: What is the strategy for TBW (Thermax Babcock & Wilcox Energy Solutions) regarding supercritical sets and pressure parts?
A: Ashish Bhandari, CEO: We are considering breaking larger projects into smaller, manageable packages. We are pushing for projects where civil and construction are not in our scope. We are working with Babcock & Wilcox to technically support these solutions. The government is also working to make these projects more palatable for companies like Thermax.
Q: Can you provide an update on the green solutions, specifically FEPL (First Energy Private Limited) and TOESL (Thermax Onsite Energy Solutions Limited)?
A: Ashish Bhandari, CEO: FEPL is facing a tough year due to project delays and lower-than-expected production from wind and solar. However, TOESL is performing well and growing steadily. We are working to rectify issues in FEPL and are confident about the long-term pipeline for green solutions.
Q: What is the competitive intensity and pricing power in the industrial products segment?
A: Ashish Bhandari, CEO: The competitive intensity is moderate to high. We have high market shares in heating and air pollution control. In water, differentiation is starting to come in, especially in zero liquid discharge and desalination. Cooling and clean air solutions are also seeing good traction. We are focusing on establishing new products and growing our market share.
Q: Can you clarify the one-offs in the margin front and the large order booked in July?
A: Ashish Bhandari, CEO: We expect to do better than the 5.5% margin for the rest of the year in industrial infra. The large order booked in July was not included in Q1 numbers and will be reflected in Q2.
Q: What is the outlook for base ordering activity?
A: Ashish Bhandari, CEO: The outlook is positive, with a healthy international pipeline. We expect double-digit growth in industrial products. The domestic market showed some slowdown, but we have seen improvement in July. We are optimistic about private sector CapEx coming in a bigger way.
Q: How does Thermax stand in terms of market share for industrial products?
A: Ashish Bhandari, CEO: We have high market shares in heating and air pollution control. In water, we are seeing differentiation in tough-to-treat applications. Cooling and clean air solutions are also gaining traction. We are focusing on establishing new products and growing our market share.
Q: Is there scope for further margin expansion in industrial products?
A: Ashish Bhandari, CEO: Yes, we expect continued margin expansion. Capacity utilization is high, and we are expanding capacity across segments. We aim for year-on-year improvements in profitability by establishing new products and growing our market share.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
