Hi. Good afternoon.

Welcome to the 1Q FY '27 earnings call of Thermax Limited. We have the management today: Mr.

Ashish Bhandari, MD and CEO; and Mr. Rajendran Arunachalam, Group CFO and Executive Vice President.

At this point, I'll hand over the floor to the management for their opening remarks. Thank you, and over to you, sir.

Thank you very much, everyone, and I hope I'm audible. Also thank you for coming into this call, and I'm sure there are a lot of questions.

Before I get to the questions, I would like to share my thoughts on what happened in the quarter. A very difficult quarter.

Felt like was the toughest one at least relative to expectations for the past few years that we have had. Not that we haven't had tough quarters in the past, but this one felt particularly so.

I would want to spend a few minutes talking about what happened in the quarter, what are we doing to fix it, and also share why I continue to be bullish about the year as a whole. Let me first start with what happened in the quarter itself.

Of the things that did not go relative to expectations, the first was, and by far the biggest was, the hit that we had to take for one specific project, which is the cost to completion for a government project, which it is part of that same bucket of projects that we had said that we don't want to do, yeah? It is the same project against which we had taken a hit last year.

We're now in the last four quarters of execution of that project. In June, the engineering partner that we had, which is the detailed engineering partner on the basis of whose design and prior expertise we were doing the EPC of the project, came back with some significant changes.

Those set of changes at that late hour was not something that we had budgeted for. Given it was a loss-making project, we took that time to take a step back, understand all the risks that we have in this project that we can see, and a contingency for what we cannot see as we execute the project over the next four quarters.

We took the impact of this forecast and change in cost, including what it would take us for site extension, expediting to meet customer commitments, etc. We have a reserve for LD, a portion of the LD, which we have kept intact, and some other numbers for what may come about in the future.

This is the hit that we have taken from a cost to completion perspective. There was also an impact in industrial products more so than other places of not being able to ship finished goods inventory overall to the tune of about ₹300 crore.

Good portion of it was for international customers, including for the Middle East, where because of the Gulf War, shipping rates were quite high and many customers chose to delay picking up equipment. Also, there was some commodity price impact to the tune of ₹10 crore, which some portion of it was expected that we would have a tough quarter because the commodity prices went up in February, March, and as some of those projects which have got shorter durations on the product side as they converted into products.

We were expecting some part of that hit to come in, and in that sense, the hit was not too much. It was in line with what was expected.

It is not being able to ship what we wanted to ship, that had a bigger impact on our profitability. Then finally, within green solutions, and now we have done two parts.

We have recast our bio-CNG business as part of green solutions. It is how it is operated.

It has moved from industrial infra to green solutions, and it is led by green solutions as well. FEPL in particular, which is our wind solar renewables business, we had not expected a ₹20 crore loss in that business.

That ₹20 crore loss is a combination of two factors. One is in Tamil Nadu, where we had a project which was actually two projects, which were complete, but they got complete during the period where the government changed.

The whole portion where the government was, the elections were going on, and later on, when the new government came in, many of the projects which were just put on hold for no particular reason. Those projects, we expected were just sitting on somebody coming and saying, "Yes, you can produce electricity from these assets."

We expect to get this approval done within the next week itself. We've got teams that are just sitting at the bureaucracy and talking to the ministry, but that change in government really set us back.

The other reason at FEPL was that as we are now choosing to cut back in areas, and we think we have a good set of assets, we want to bring an external investor into the platform. Some of the carrying costs of the people that we have affected the bottom line as well.

Both of these together resulted in a ₹20 crore loss in FEPL, and we're carrying an ₹8 crore loss in bio-CNG. I'll talk about bio-CNG later, otherwise.

These are the things that contributed to Q1. As I look at the year as a whole, I am as bullish as I was when we talked about Q4.

Let me first start with the revenue and profitability portion. I'll then go into the order side.

On revenues, our backlog is quite significant, and in Q1, we barely delivered 7% growth in revenue. Some portions of it was because I talked about this ₹300 crore that could not ship out, but even with the ₹300 crore taken in, our backlog is building up very nicely.

Our backlog, the quality of our backlog, for the most part, especially on the project side, is very good. On the industrial products, there is one more quarter of some amount of volatility as the commodity price is completely get flushed out of industrial products.

Otherwise, in industrial projects, the backlog that remains is very, very good and profitable. That will start to show up in Q2, Q3, and Q4.

You have also previously seen that when we do better than ₹3,000 crore, just the gross margin impact that you get, and how the gross margin flows through to profitability is nice. Last year, we did one quarter which was more than ₹3,000 crore.

This year, we'll have to do two and hopefully three quarters that are more than ₹3,000 crore, you will see that impact on profitability as well. Next on profitability, I have said, and we've been saying here, there are three areas where we need to do better.

One is these government projects that are long duration with civil construction, which for the last three years, we haven't taken at all. I had previously committed that this would be the last year we would have any exposure to those.

I think, for the most part, I would stick to that. NRL, with this change, will slip into Q1 of next year, but all the cost impacts, I expect that we have absorbed and taken care of this year.

Whatever remains, hopefully, something that will not have any major impact. Our FGD projects, HRRL, everything.

HRRL is over with this quarter. FGD, all the FGD projects are going as we had committed and planned previously, and will get executed between Q1 and Q2, one more plant got handed over; Q2, one more plant will get handed over; and the last one in Q4 of this year.

All of FGD would be, and there are no surprises coming on FGD. They're not very profitable, but there are no more surprises on FGD.

We are executing every project, and now that we have delivered one plant to the customer, we know very well from an engineering point of view what is entailed, and we're just working that on schedule. FEPL, I have already shared what our path on FEPL is.

This year, we will look to bring a partner to the platform who will take substantial majority of the platform. Third is bio-CNG.

On bio-CNG, we have four projects, which I had talked about, which are the EverEnviro projects where we had PGTR commitments, which is performance commitments to the customer. Of those four projects, one we have finished PGTR successfully.

Second one is going through PGTR, where half the PGTR is over, and it's also going through successfully. The next two, because of some of the monsoon changes, monsoons have significantly affected operations in those areas where the rice straw coming in was wet, and there were some other challenges in terms of energizing electricity, etc., at those sites.

They will go through PGTR in August and September. Next quarter, I should have much better insights into how those projects are going.

That is the last remaining portion on the bio-CNG side where at that point, our liabilities all across would be over. The question now is, for two years on bio-CNG, we haven't taken any new projects.

Whatever orders we have had have been change orders on existing sites to add capacity or whatever a customer would pay us for. We haven't taken on any new projects, and we are carrying a team for which we are taking a hit of about ₹8 crore a quarter right now, ₹7 crore, ₹8 crore.

We are waiting that cost will get liquidated against new projects because that's the manpower that we need to execute a project. We need to the tune of two projects, which is ₹250 crore to basically work the team and the cost that we have against that team.

The expectation is that there are some big policy changes that are expected imminently, which should then create a significant pipeline for Thermax, and I'll answer kind of what is the outlook, etc., as part of the questions that you have. This is kind of the things that are detractors to the Thermax numbers on the revenue and profitability side, and my opinion on those.

On the order side, while it looked like it was a weak orders quarter, we have a significant opportunity pipeline across the board, and we had a very good orders year last year. I expect us to exceed that order book this year, yeah, which means Even in Q1, there were two big shake hands that were done, relatively big, a few hundred crore, but we could not, because the advance didn't come in, we couldn't book it.

Supercritical also, there is a continued pipeline. International, across the board, there is a very good pipeline.

I stay very bullish on orders and continuing to build a pipeline of the kind that we like and want to execute better on. Chemicals also, we have had a turnaround in the business.

There's still some risks relating to commodity prices, but on the volume coming back, and which helps us on the bottom line, that part is good. With this opening and preamble, because you would have a lot of questions, I'm okay to go beyond the standard time that we have set for our discussion.

I look forward to answering your questions one by one by one.

Hi. Good morning, and thanks for this opportunity.

Sir, my first question is, you did touch upon the order where this is really coming from. Could you quantify the size of the project which was there, and how much of that is pending in the execution, which you expect to complete over the next four quarters?

Where you've taken this ₹91 crore hit.

Yeah. The original order was about ₹1,200 crore, of which now it is running at negative teens profitability, which means the loss that we have on the project is close to ₹150 crore.

Rajendran, could you specify what the number is if you're comfortable sharing that? The order itself was taken in FY '22, and it is in its last portion of execution now, where what remains is now execution on the ground.

The last four quarters are still execution-heavy. Civil is largely over.

It's on the construction side. It's still heavy.

The engineering portion, which is where some of these changes and the corresponding equipment and all those other changes came about, we now have a formal letter from our engineering partner saying the engineering is now 100% complete on their part. At the final stages of commissioning, there could be some minor movements here and there, but the engineering is now complete.

Have I answered your question, Rahul?

Yes. The balance, I think that's something which we're just waiting for.

The invoicing completed is about 74%, and balance 26% is to go.

Sure. Yeah.

Sir, my second question is, with Thermax, we are seeing, when you all are delivering projects, if there is any shortfall in terms of the output that was expected and we end up having penalties or higher cost, make good for the loss that the customer would have had. Now, I want to know, is this the normal terms and condition of the industry, or is it that it's different with every customer?

See, we have shared a page which we would like to go into a little bit more detail with everyone. The realization is the kinds of projects that we had, FGD, HRRL, majority of the FGD projects, HRRL, NRL, they all have one thing which is common, yeah?

Customers that are government customers, and L1 method of bidding, and a typically tougher line taken by customers on what feels like are reasonable decisions. Which is why these projects tend to go on forever.

We have got lot more highly demanding customers here. Our international customers that we serve in the Middle East and other places, they are way more demanding.

There is a practicality in how that whole discussion and those relationships work, which for government projects, we have seen really doesn't happen. This method and the way this happens is, in some ways, unique to a kind of set of things that we have said we'll just walk away from.

There is a whole set of government projects which we're not saying we will never do them, but we will do them at a price point and which are commensurate with the risk that you are taking. If you don't get those price points with those customers, then it is okay if those numbers go down to zero, and over the last three years, they have come down to zero.

Practically, yeah, we are doing nothing. We have taken one IOCL project, which is very small, which is ₹50 crore, ₹60 crore.

Otherwise, there is nothing that we have taken on a government project. We're still living through things that we had taken some time ago, and this is the last year that we are working through.

The only other one where we have risk is relating to the bio-CNG side, for example, where there is a performance contract in bio-CNG projects. Typically, almost everywhere where we have performance targets, Thermax, we know our equipment well enough that very rarely, if ever, we get into the performance of our equipment.

We tend to work in areas of energy, water, air pollution control. We know very well what we can deliver or not deliver.

We can talk a little bit about supercritical as well on why supercritical is, in that sense, a part of what we understand much better than otherwise. Bio-CNG, we went in because the whole industry was very nascent.

We took on some performance guarantees, which were difficult to handle because on both sides, the feed itself that we've got was very different than the feed that was expected, it went into a little bit of back and forth. Other than these two areas, there is nothing, and both of these areas, for bio-CNG, more than two years, and for these large government projects, more than three years, we haven't done anything.

We are bringing this portion of our business down to zero where we have customers that we don't like or economic models that are not completely in our control. Both of these, we are bringing down to zero.

We're just cleaning up our book from what was in the past. Otherwise, with most private customers, international customers, there is a relationship which is back and forth.

It is not like every project is smooth. In some projects, we have LD exposure, etc., as well.

We manage that in a reasonable fashion with 90-plus percent of our customers. The last thing I would say, Rahul, is that the way we account for things is that if it is a profit-making project, and you have a cost increase, that cost increase gets accounted for as the project accounting happens, yeah, which means even if there's a cost of increase of ₹10 crore, but you have ₹300 crore to go over, say, four quarters, you take proportional risk as you execute the project itself.

For loss-making contracts, the way our accounting works is you have to do loss accounting for whatever you see in the future. This is a loss accounting for execution that will happen over the next four quarters.

Sir, just following up on this aspect. Now, I clearly understand how the government contracts, now that we'll be probably at the last leg of it.

As far as on the bio-CNG performance guarantees, how long do they typically have? Is it one year, or it's a five-year performance guarantee

that

our responsibility?

No. It is one month or three months.

That is it, yeah? As I'd shared in the opening, there are practically four projects on which we still have that performance risk, of which one we have delivered, handed over.

Second one has crossed more than 50% and is continuing to make good progress. We are confident we will hit the commitments that we had made to the customer.

The next two will go through performance execution in August and September. Sure.

Sir,

thank you very much. Thank you very much for this.

I have more questions, but I'll come back in the queue. Thank you very much.

Please come back, yeah. We'll run this longer if your questions are not answered by anybody else.

We'll take them on. Thanks.

Thank you very much.

Sir. Thanks a lot.

Sir, my question is on your order book. As a part of your order book, what will be the proportion of the government and PSU projects currently?

Of our order book what remains, I think it is ₹300 crore, if I'm right, ₹300 crore to ₹400 crore is what would be left.

Very miniscule, out of almost ₹14,000 crore rupees, just ₹300 crore is pending.

Yep. It's getting to less than 5%, and almost going towards 0% then.

Okay. At least in the foreseeable future, you do not see yourself bidding for any more PSU and government projects?

I didn't say absolutely no. I would say we would do those at our terms and priced correctly.

I don't think it is right to say never because in cases where boilers and certain capability that we have where we can do something that nobody else can, if there are only one or two participants that can do that correctly, and you price it right, and you win it, then we can look at that. Certainly not at the way we bid them in the past, where we took those projects the way we bid a domestic project.

That is really not the case. We are working those because the sites get delayed, it is not in your control.

Most private players account for that correctly, give you extensions, give you money for those extensions. Government customers, even good ones, in this particular case, I wouldn't say the customer is too unfair, but just the way the process works We have to price it correctly.

I wouldn't say a complete no or a never, but we would price it correctly, and we would do things where we have a particular capability which is not available with anybody else. By the way, sorry, I'll make an exception to what I had said.

I'd said there is only one IOCL project, which is of the tune of ₹60 crore. There is one other project, which is also less than ₹100 crore, which is a green methanol project for Kandla Port.

Kandla Port, I suspect, will get treated as a government entity at the end. This is producing green methanol, where we have the technology for producing green methanol from syngas to green methanol, which nobody else in India does with indigenous technology.

The project was configured and developed on the basis of our capability, which is why we were doing that. That's it.

Sir. Sir, for this project which had the cost overrun of ₹91 crore rupees, you seem to suggest that mostly it was because of some last-minute engineering changes by your engineering partner.

How does it work? Now that you have booked the losses, do you have some kind of claims against the engineering partner as well?

Because it looks like that what they should have done at the earlier part of the project, they delayed it, and because of which things kind of went out of control.

First, I think this was a wrong project to take, yeah? We shouldn't have taken it.

It was just wrong, yeah? After this, '23 end and '24 onwards, we have completely changed the way we take on projects and the kinds of things we put in place before we look on a project.

I'll start there, yeah, to say that this project itself was a mistake to take. Because the engineering partner, in a project order of ₹1,200 crore, has an exposure of less than ₹100 crore.

They build that in portions where what you're left with is a few crore of LD. That few crore of LD is nothing that you can do, whereas you are taking a hit of more than ₹100 crore, and you've got working a site.

Just the model itself was a mistake on our part. This was also something was in an area that was new to Thermax, yeah?

In almost every other case, we do the engineering ourselves. The question is why did we take on a project which was that large where we did not know the engineering, and furthermore, was a PSU, and all of that?

Those are all the questions that our board has also asked, and the only answer I can give is it was a mistake. Not one that we have remotely done in the last three years.

Now, for almost every project, including the project that we took for green methanol, we do majority of the engineering before we even bid on the project. If we can't do that, then we just walk away, and we don't even bid for the project.

We do a 3D model, which is not 100% accurate, but a largely accurate model on the basis of which you can do the costing of the project and retire the engineering risk, including we did this for supercritical as well before we take on the project itself. A lot of work is done in advance so that your costing is extremely granular, and you are doing engineering, and you have a methodology by which even if the engineering partner is involved, like in supercritical, we've got B&W as our engineering partner, all the risks that are in the project are identified before we bid for the project itself.

Which is why for the first supercritical project, it took us nearly an year to close with the customer. Also in the case of supercritical, we said no to all civil and construction.

We've said no to all balance of plant. We said we will just deliver the boiler and nothing else.

With the customer, we had change provisions for commodity price increases, for the imported portion that we had, currency fluctuation. All of those safeguards, we had put in the order itself that we took on.

Those are a lot of things were put in place. In this particular case, it is something that internally has just taken so much of our discussion bandwidth for the last year.

Because it's called into question practically everything about how we execute projects in Thermax, which is why this time around, we took a page to share with all of you. Because projects execution can never be completely perfect, but it was important for us to share with you how we see our own execution.

This is something that we are sharing with the board on a continuous basis. This is the first time we have shared it with our analysts.

I'll spend some time on that slide. We've taken all the projects that we are being executing that are greater than ₹100 crore over the last couple of years, and we have broken them down between private, export, and PSU.

What we are talking, it doesn't matter at what margin you booked the project. What we are looking at is relative to how you booked the project, how did you deliver the project?

How did you deliver, or in your system, based on your current visibility, how do you think you will deliver the project? Which is why the export projects are not all delivered, but on what path are you to deliver those projects?

In that list, which is more than 30 projects that we have shared, 35 projects, if I remember right, total, other than the PSU projects, almost all the other projects where you have price movement, which is negative, is less than 10%, and of those 10% that are more than 5%, you will see there is a corresponding number which is greater than 5% as well. Which means while there are price movements, everything else is largely under control or better than under control, yeah, doing better and better.

It's only on those PSU projects where we have had an issue, which we are completely bringing down to zero, and being very careful in terms of how we book even if we choose to bid on anything going forward.

Sir. If you can allow the last one from my side on order

Look, I'll go a little longer, yeah, because people have follow-up questions. If it is the question in the same category, then I'll allow it, yeah, because if they are follow-on questions in just the same category, I'll allow it.

Oh no, sir. I will come back in the queue.

I have a question

on order book.

Thank you.

Thank you. Thanks, Ashish, for the opportunity.

Coming from my investor side, the problem we are grappling with Thermax for last many quarters is the commentary and finally what comes out in execution. The consistency has been an issue, which was not there for a long time because I've been seeing this company for more than two decades now.

In your view, what's going wrong? Because even if I look at your fourth quarter commentary and to just verbatim quote, you said that in the industrial infra business, we have confidence in the margins going forward.

I'm sure this project, as you've alluded, has been a point of discussion for last 12 months within your boardroom. You fairly were aware that this could be something which could hit us as you move ahead in FY '27.

I'm just trying to understand that how, as investors, we should take that from our overall commentary perspective because that's something what the market reaction is also showing out. It's investors are not very confident on what the commentary has been and what the execution finally comes out to be.

I'm being a little bit candid, but that's the discussions which people are having. Thank you.

Pankaj,

your question is very valid, and I don't think it is unfair by any means. Anybody looking at our numbers would have that same opinion, including our board, which has been absolutely clear, transparent, and brutal in its expectations of us as a team.

I think anything I share beyond making excuses would only take away from the fact that we haven't done a good job of showing what it is that we are capable of. Let me just take, with that as the preamble, let me take a step back on two parts.

We've been saying now for few quarters that we realized we made a couple of mistakes, and then in the last three years, we have been working to bring these mistakes and the impact of these mistakes down to zero. Even last year when we had shared our numbers, I talked about that 2027 is the last year where we will see impact of some of these businesses, and I will stick to that word and I'll continue to stick to that.

It is despite all of this, at least in this period, despite taking all of these hits, we have been showing by the time the year gets done that our revenue, while it may be flat, our profitability, despite taking all of these hits, has largely been going up moderately, not as much as I would like, but it has been going up moderately. I would say even with taking this ₹90 crore hit, I expect this year to be a very good year.

At the heart of it comes down to the backlog that we have built up, and getting that backlog to translate into revenue. As some of these legacy projects get worked out and finished.

That is the only thing I can say why I see consistency in our future, and these three areas where we need to clean up our act and what we are doing to clean up our act. Now, let me talk about this particular project and what happened and what changed.

The engineering change that came from our partner came in June, early part of June. When it came in, it was first a surprise that we did not expect or like.

Then the team took a couple of weeks to go out and say, "Okay, this is the change that has to come through. What is the impact of this change that will come about?"

That impact then came out as a bigger number than what we were expecting. Then, as is prudent accounting, we took a step back to say, "Okay, if this is what is happening, and then we need to take into account other impacts that will happen."

Which means the site can get longer, you will have to account for that. You may have other changes which were in your medium risk.

Even though you may have opportunity of change orders and all that, you need to start accounting for those medium risks in your number as well. Then, after looking at all of that, this rather large number came up, and prudent accounting said, "Just take that hit."

Which was not easy because it's taking away from lot of other good work that is going on in all other parts of Thermax, which is why we shared the execution profile on how tightly we are monitoring and working almost all of our projects. Outside of this one project, there's less than 10% of our projects which have a movement of less than 5%.

It is more than corresponded by many projects, which are more than 20%, which have an impact of better than 5%. Net-net, we actually outside of this one project, our project execution adds to our as-sold profitability, not takes away from our as-sold.

Your point around us not doing a good job overall in terms of what we are showing to our investors is correct. I think it is something not just this year, it is what has been getting us to work extremely hard for four quarters, and in fact, it actually starts the year before where we said no to so many orders because we didn't think they were the kinds of orders we should take.

All of FY '25, we said no to orders. In FY '26, where we started to focus lot more on international, even domestic, we said no to NTPC orders for supercritical because they had all the characteristics that we did not like.

We were extremely patient on when we acted on our first one. The breakthroughs in data centers and all, and none of those things have we delivered yet.

The entire data center backlog, which is now several hundred crore for the US and extremely profitable, are things that are sitting in our backlog and will get executed over the next few quarters. The good portion, we haven't been able to show to the extent that we would like.

Certainly, we are showing the bad portion more often than we would like to. I don't know, any more questions you would have

Thank you. Thank you, Ashish.

Only just one, maybe an observation, suggestion, whichever way you can take it. Whenever there's a huge divergence between what you have said previously and the outcome is very different, like the IT companies, you can give a profit warning just at the start of the quarter so that every investor, everybody is on the same page.

This kind of a negative surprise probably takes everybody very negatively. Profit warning could be a better way to do it rather than surprising it every quarter on some of the other side.

It's just an observation.

Just an observation, it's a good corporate governance, and it will help you in the future. I understand, Pankaj.

I think even this point got discussed, and a couple of members of our board have made that very specific comment that you do, that IT companies and all need take time out. We debated that internally.

I think, going forward, I'm not committing to it. It's between us as a team to decide.

I think this is something that we could have done. Also, what happened was as the numbers came out, and we had some idea about what that looked like, to clear that through our board and through our auditors also took a couple of weeks because this was a surprise at many levels on this particular project.

The questions were exactly the questions that you are asking. "Can it get any worse?

Are you being conservative enough? How could you be so bad?"

All of those questions that you're asking, which were valid. Some of that also took a little longer to conclude and to finish.

Your feedback is very well taken, and without committing to it for sure, your suggestion is something that we are looking at very strongly to say if there are such surprises, we need to be sharing those much earlier and doing so. We will take this into account.

Thank you.

Thank you, Ashish. Thank you.

Wish you all the best.

Thank you.

Yeah. Ashish, this is if I look at the Thermax pre-COVID and post-COVID, the two halves, there was a difficult six-year period where a lot of talent was being restructured.

Even in the pre-COVID era, even the project was taken in a difficult environment, 4%, 5% margin, but at the end, it used to come out with a 6%, 7% margin. Have we seen that the restructuring of talent, and I think, if you could answer that, is that the talent issue where we had Thermax with an impeccable execution track record, and that has become completely in reverse over the last six years, and we've been consistently seeing disappointments over the last 24 quarters?

Maybe you could talk about the talent. The second thing is, while we've seen a few mistakes and you've called out those mistakes, you pointed out public sector, and the worry that is that because of the one or two mistakes, will you compromise the growth significantly because in the hindsight, you could say that, okay, these were things that you could have correct on, but not taking public sector projects and taking projects with these specifics, would you be compromising on the growth, and that can hamper the underlying long-term growth for Thermax for just want of being conservative?

Good questions, and thank you. First on the talent bit, in this particular portion, I don't see that as a concern.

At least that wasn't the concern. The mistakes that were made, even if the team that was doing it was the same team.

Actually, the top five people who were involved were all with more than 20 years within Thermax and with project execution expertise that is relevant for doing projects. It's not like they were not of projects background.

They were, and they are. Not everyone in the team is still with Thermax.

We have had some structuring that has been announced as well, and some consolidation in how we work. That was announced as well.

Not all of that was announced. Some of it, as you looked at the restructuring of our business, the elements and how we are reporting and bringing things together, it was as part of that.

I don't think talent by itself was a point. If anything, we are seeing an environment right now where even in some cases, talent that had left Thermax is looking to come back in multiple parts of our business.

Certainly in these large project execution, there were zero people who were not long-term Thermax people. I would say even the bio-CNG business, the way it got incubated and led, the first entire portion of the business, only now we are getting one or two people from the outside.

Everybody else was legacy and Thermax project experience. FEPL is the only area where we have had leadership that has come from the outside, and TOESL is the area where we have had leadership come from the outside.

TOESL has done spectacularly well, and even in this last quarter, TOESL booked two orders, very good, marquee orders, and one of which was TOESL's largest order of ₹120-plus crore with a 10-year revenue outlook of ₹2,000 crore. It is that level of numbers that are coming into the business, and we really like that.

FEPL, overall, I think, was not a right business for Thermax. That's the only way I can put it out.

The second part of your question is, will we be conservative? In some parts, there was a redirection of the business, and that actually was more 2025.

If you remember, 2025 was a very muted year for orders for Thermax, and even at that time, there were multiple projects that we bid on for governments also, which if the price wasn't right, and we lost them, we were perfectly okay losing them. FY '26, almost everything that we did, we like.

We will not compromise on our growth as long as it is in the right areas and in ways that we like. The focus then is on having technical differentiation and capability, which is worthwhile, and second, continuing to really get good at project execution.

I think the mistakes that have happened have happened. We can't continue to cry our entire quarters and the entire year about it, but there's a significant focus on just executing projects better.

By the way, to me, that is not just Thermax. The entire Indian ecosystem needs to get much better on executing projects because we're working in an environment where weather patterns are fluctuating, labor is not that easily available.

We need to bring in lot more automation, lot more digital into how project execution is structured. That whole model is a post-COVID model change, which needs to happen.

It does not mean that we will not do projects going forward, and certainly you will see in TBWES, where we have got good capability, where we are able to execute well, we are taking projects. Even in this year, we will take projects, yeah, where customers are good, we know how to price them right, it is in an areas where Thermax can do well, we will take.

Which is why, Bhavin, I was saying on the order side, I still see a pipeline which is better than what we did last year.

Sure. Thank you so much for taking my question.

Thank you.

Hi. Sir, this is Amit from UBS Securities.

Ashish, I just have one question. A lot has been discussed already about the legacy orders, how it will flow, thank you for that.

Just following up on Bhavin's question, can you help us There's a lot of demand and growth we can see on industrial states on compliance, ZLD, ETP, right? You have a lot of industrial product pipeline, right?

I know these discussions get lost right now on a very, very overwhelming quarter. If you can throw some light on these segments, and most importantly, the TBW scale up because that's where the core of profitability could could lie looking beyond the legacy order.

If you can spend some time on three, four important segments in the pipeline colors, Ashish. Thank you.

Let me use the first question that you had to share industrial products and what is going on in industrial products, and then I'll spend time on TBWES, yeah? That's how I'll break my response.

Amit, you are right. On industrial products, the broad events which are relating to sustainability, cleaner air, cleaner water, continue to drive a very healthy pipeline.

ZLD as an example, which was a very small portion of our business and negligible portion of our business even two years ago, in our water business, as driver of ZLD plus ETP overall with ZLD as a core, has become the single biggest part of our water business. Then if you add up solutions around desalination and other emerging areas, those have become the driver of our water business domestically and internationally, both.

Similarly, on clean air, the emphasis that is coming from many states on just better control of what we exhaust out of our plants is getting better. I don't think the enforcement is still as good as we think it can be.

In my opinion, in the northern part of India, significantly better implementation is needed. The policies may be there, but enforcement is not as good as can be, and we have the technology to go out to every one of those plants and retrofit them with air pollution control equipment, which would cut down the emissions significantly, bring them up to the tightest norms that are possible, which will help during winter months when pollution gets really, really high.

In cooling, similarly, there are trends around data centers, around our heat pump technology, which has got good legs as we go forward, CLCT technologies, which can deliver much lesser cooling needs at plants and commercial locations. In boilers also, the whole biomass boiler bit, every one of these areas, I feel, has got good growth, and it is that kind of growth that we've been seeing for the last two to three years, solid double-digit growth year-on-year, is the trend that I'm seeing in this part of the business, domestically and increasingly internationally.

We are getting more and more competitive internationally, yeah, which is also good to see. In that same breath, I would say, in industrial products, you could see our profitability in Q1 drop because of some exposure to commodity prices, and because we were not able to ship as much as we would like to.

In two parts of our industrial products business, like pollution control equipment, design and engineering, you can do well, but it is largely just steel, steel, steel. When steel prices jumped up by 18%, it went from 52, 53 to 61-plus in just two months for plates.

That impact comes on a couple of those businesses. Those we need to work through.

In our cooling and our heating business, cooling in particular, where we have got opportunity for much higher margins given the spaces that it is working in, the backlog is more Q3 and Q4. I see some amount of pressure in Q2 in industrial products margin, that will get cleared in Q3 and Q4.

Year overall, I'm still confident that we can, in industrial products, deliver a year which will have good profitability growth, good orders growth, and good revenue growth. TBWES is the place where there is a structural shift that is going on.

Here, we are adding capacity. Not only are we adding capacity, we are looking to work with our ecosystem to significantly increase the capacity through our ecosystem as well.

Because we are seeing a big pipeline of thermal projects happening, we are seeing international pipeline, including Middle East and Africa, and waste-to-energy domestically and internationally increase quite substantially. Finally, we see a pipeline for data centers also starting to come by for the US.

This is specifically for the US where natural gas to power is a big space. This is specific to the US.

In TBWES, we are increasing capacity at our plant, as I said, and also looking to increase capacity through our ecosystem as well. What I would say is look for a measured, continuous growth in industrial products.

Look for discontinuous growth, which is what we're going through on the TBWES side. Even on the project side of the kind I think we can execute well, power plants, private customers, domestic and international, taken at reasonably good margins, even there our pipeline is increasing now.

Thank you, Ashish. I'm good.

Thank you for the opportunity. Ashish, the question from my side was more linked to your competitive positioning in two key markets: data centers and hydrogen.

Why I ask this question is that somewhere a few years back, you talked about heat pumps and where you stand at what temperature you can extract heat, how good you are. Over in these two segments in data centers and hydrogen, as we stand, and I understand there's a combination of capabilities that is going up inside the company.

The annual report was fairly informative on that aspect. We just want to understand how better you are versus others, and accordingly, how big can these businesses become for you over time?

There are four parts of our business that have exposure to data centers: our cooling business, where we provide absorption chillers and hybrid CLCTs; our TBWES business, which is capable of providing boilers and pressure parts for boilers for large power projects, which then are powering data centers. These power projects are specific to powering data centers.

Third is water. Fourth is chemicals, where you need water treatment chemicals for water plants that you supply for data centers.

Those are the four portions of our business that have exposure to data centers. All four of them are critical to a data center.

You will see there's a lot of talk about power, cooling, and water as drivers of data centers. Of these, the order that I mentioned is the order in which we have differentiation.

The biggest differentiation we have is on the cooling side, where what we can do especially in co-located where power is co-located with the data center, what we can do for international markets, particularly the US, very few can do, and the competitors are maximum one to two globally, not just domestically, globally. The question there is, how do you get yourself in front of the customer, and you have a position by which you can explain and work your technology into the overall scheme for the data center?

There, we had our first win last year, which we were really excited about. Even now, the overall pipeline that we are working of those kinds of projects is significant.

There are two major solution providers in the US, with whom we have MOUs that are inked that they will incorporate our technology as part of their overall execution philosophy of cooling for a data center. Where we are getting more and more progress.

If I had to commit, while there is a larger range, I would think between Q3 and Q4, we should be showing two more wins that relate to cooling solutions going for data centers in the US. That's my expectation.

Handshakes in this quarter and next, and order booking in Q3 and Q4. That pipeline, I hope, with each quarter will continue to grow.

Similarly, cooling for India and other markets, where with our hybrid CLCTs, we have a position on technology which is different. Traditional cooling towers can't do it, and, again, the core point is can I save power that is needed at the data center?

In cooling, we have a position which is unique. Next would be boiler pressure parts going into the US, where very few Indian companies have that exposure and that capability, and where we have a breakthrough.

The competition is not from China. The competition is actually from US-based companies and what we can supply.

I guess there could be competition from China going forward as well. There also, the question is not as much on price.

The question is on how quickly you can deliver and trust in our ability to engineer that. That is second.

In water and in chemicals, while we have a pipeline, it is not super-differentiated in the sense that the water that is needed has to meet water norms that need to get met for any other basically water treatment plant as well. This is called as raw water treatment, and it's basically a configuration which is relatively standard for water.

It's competitive. Similarly, on the chemical side, once that raw water treatment plant comes up, cleaning it with chemicals is also relatively straightforward.

In water treatment chemicals overall, we are one of the larger players in India, we get a share from that point of view, but it is not something where we think the technology is particularly demanding. Okay.

Have I answered your question? It's a fair amount of detail.

Yes. Pardon me, the hydrogen part, as in we could see

through

the manufacturing there, the alliances being there. A lot of things happening over there from a capability factor perspective.

Yeah. Hydrogen,

I would put hydrogen and bio-CNG as two areas where we are saying we will commit to putting our head down and working through this because we do see light at the end of the tunnel. In hydrogen, in my view, there is only one other company in India that has put together a team and the capability of the nature that we have.

We have already shaken hands on one project. We can't announce it yet.

Hopefully, in the next quarter is when we will announce it because it has got some time to when it will become bookable. We are starting to see some success coming our way on the hydrogen side based on our partnership with HydrogenPro.

Not only that, even on SOEC, where our demo plant has to go up, our demo plant will go up at the end of this year. It will be a showcase plant, and it will be showcased with global standards.

It'll be not just for India, it'll be a showcase for global standards, and we expect a couple of very big names to be partners in that demo project as well to where we will be able to show our capabilities. Hydrogen, right now, we are working through and carrying a team of about 40, 50 people, which is just doing engineering and work and setting up the demo plant, etc.

Next quarter, we should be able to announce an order as well, and next year start to show revenues around hydrogen as well.

Helpful, Ashish. I'll jump back in the queue.

Thank you.

Thank you.

You did alluded on the products business in terms of margin and growth. Just wanted an understanding basis the current order book in industrial infra, and you have given one slide about the margin change.

What's the margin expectation now basis the current book? Second question, you said you will exceed the overall order inflow versus the last year.

You also highlighted there's been challenges in PSU, public sector orders, and the focus is on the private sector orders. For the remaining nine months, what is that you're factoring in the order inflow in which segments, and is it the data center which you highlighted or the other segments which will contribute to the expectation of your order inflow, given the constraint that you have set for yourselves now?

Sure. As I said, not just this year, even for the last two years, we have completely walked away from any large government multiyear civil construction kind of projects.

In fact, overall in our portfolio, it's not like civil and construction, we will say no to. Wherever civil and construction is involved, we are going in with our eyes wide open.

If I had to share why am I overall excited that we think we can do better on orders, let me first focus on industrial infra because that is the place in which we had booked large orders last year. How do they match is what I would like to share first.

Industrial infra, we had a supercritical project that we booked last year. I suspect we will repeat a supercritical project this year, at least one, maybe more than one as well.

We've got multiple active opportunities, and I do think with the overall capacity look in the market, there will be more customers who will look to work with Thermax. That portion is, at worst, equal to what we did last year.

Then we had an international set of projects, one relatively large project for the Middle East and one relatively large project which was in refining and petrochemical for Africa. Both of these, we see equal to or more in this coming year.

Africa, our pipeline continues to grow, and of the projects that I had talked about, we have already shaken hands on one in Q1, which we just couldn't book because we're just waiting for the advance, but the project is all signed and done. We have got more in the pipeline for the remaining quarters as well.

Similarly, Middle East, we see a good pipeline, whatever we did last year, we should be able to do more. On top of that, we've got the data center pipeline opening up for the US, and India subcritical and captive thermal also coming in, in addition to waste-to-energy and some of the areas where we think we can execute couple of EPC projects also.

Overall, the pipeline is very healthy. We were very patient in Q1 wanting to focus on booking what we think as an order profile that we like, which is why it looks relatively muted.

By the time the year goes through, our pipeline continues to be strong, and I expect to do better than what we did last year. Industrial products, you can see, even in this quarter, we showed double-digit growth over last year.

We will continue to be on that path for the remaining year as well. I think there is some short-term kind of where some of our sectors like rice, from which we get quite a bit of business, some of the customers are worried on exports to Middle East, etc.

They are timing moves here and there, not too much. Overall, our pipeline continues to be good in industrial products.

We'll grow year-on-year. Chemicals, we have shown a much better Q1, and some of our volumes have come back in chemicals.

I do expect that we will grow at least 20%, hopefully, in chemicals. In green solutions, TOESL has had good success in Q1, and in TOESL, the numbers don't go down on revenue, yeah?

They continue to go up. TOESL had a very good Q4 on order booking, very good Q1, and a very good pipeline going forward.

TOESL is on path to becoming an ₹800 crore to ₹1,000 crore business over the next two years on a consistent basis. It's already on a run rate of better than 600, but the outlook is We already see visibility of it getting to ₹800 crore to ₹900 crore, and then kind of as it continues to do well, get into ₹1,000 crore kind of a number on a continuous basis.

Bio-CNG, I spoke about we haven't taken any reasonable number of orders. If bio-CNG opens up as a sector, the expectation is, in August itself, some of the pricing changes that the government wants to do will come into place.

Q3, Q4, there should be a good pipeline of bio-CNG projects also starting to develop. Hydrogen, I've already shared my outlook.

Other than FEPL, and even in FEPL, as become into execution and they start to produce power, they will start to show more as well. That's my reason for confidence across the board on why I think, on orders, we will have a decent year.

Right. Just a follow-up on the data center

Without anything on PSUs.

Right. Just a follow-up on data center, what's the size of this power plant structure

Thank you.

Good afternoon, sir, and thanks for the opportunity. My question is, sir, in the opening address, you mentioned that there are big policy changes which you think should create a significant pipeline for Thermax.

Can you please dwell on it, and what kind of policy changes you're expecting, and in which segment? Yeah.

No,

no, I did not say big policy changes are expected that will affect all of Thermax, yeah? The only policy change I was referring to was specific to bio-CNG, and I'll repeat that again.

Beyond that, it wasn't policy driven. India doubling down on thermal is something that three years ago, if anything, post-COVID, we were actually building a Thermax where thermal would have no role to play.

Where we stand today, one of our biggest pipelines is from thermal. Not only supercritical, even subcritical, captive power plants, a very large pipeline for thermal which has emerged.

That was my only point. Nuclear and many other sectors will have relevance for Thermax, but that is not for the next three years.

They will all have relevance later on. Where policy will play a role is actually largely on the green solutions area, and the biggest area would be in bio-CNG.

Where bio-CNG today, the government has said they want 5,000 bio-CNG plants and waste-to-energy plants. The reality is that we have 150 plants in India.

Most of them are not meeting the economics that were originally envisioned, and are effectively not loss-making, but with significantly low returns on equity. That is the reality.

Also because of which, lately, no one has been putting large-scale plants, including the big players out there. Meanwhile, India's import bill continues to increase on natural gas.

We don't have an effective home for parali. You don't have, "What do I use all this parali for?"

There is a very high degree of expectation and confidence that the government will look to fix this. What is expected is that the price of bio-CNG will go up by more than 20%, somewhere between 20% to 30%.

If that price goes up by more than 20% to 30%, this is straight money going into improving the economics of the project. Doesn't affect cost.

Simple price increase for bio-CNG, with higher mandates for bio-CNG mixing as part of overall CNG mix, and then state benefits and other benefits as part of what is called the SAMPOORN scheme that the central government is expected to push. In fact, many of us are expecting that August end, where there is a big conference in New Delhi, there will be some announcements that will come up.

Even if they don't come up there, the expectation is August is when they will come up. Second would be green methanol, where government is looking, as part of SECI, to create a movement around green methanol as part of our ports and India to become a green methanol hub.

There also SECI is collecting tenders and creating a big pipeline on green methanol. Both versions of green methanol, e-methanol and biomass-to-methanol, are areas where Thermax will have a role to play.

We'll be very careful in the kinds of projects we take and the risk that we take. Our first focus is on executing our first project in Kandla and making that as a showcase place.

The Kandla was particularly chosen as a small-sized project in which we can amply demonstrate our technology. Kandla will get executed from our portion between I think Q4 of this year and Q1 of this year.

It's not delayed by us. It is more the site and what the customer needs to do, which may delay it.

Then hydrogen, we've talked quite a bit about. Hydrogen is one more area where government policy can impact how big the market can be.

In the traditional portion of our business, there is no dependence on policy at all. Understood, sir.

Thank you, and all the best, sir. Thank you.

Good afternoon, and thank you for the opportunity. This is Subhadip Mitra here.

Just wanted to check that in your opening comments, you've talked about the fact that we have only about ₹300 crore of PSU and government-related orders out of a total ₹14,000 crore order book. Is it right to understand that this is the only portion of, let's say, painful legacy projects that are left, which could be exposed to cost escalations on margins?

Beyond this ₹300 crore, hopefully, the pain ends. Also, what is the, let's say, new normal in terms of the consolidated EBITDA margins that you would look at once all the legacy projects are done with?

Thanks.

First part is, yes. On the industrial infra side, this is the last portion.

It's got a mix of NRL and the FGD projects that is the last remaining bits. The two last bio-CNG projects, I talked about four, of which two are going through PGTR.

One is finished, one is well through its PGTR, and the last two remaining that's the one area where we are confident, but until we finish it, that is an area which is also something that we need to close out, and that too should get closed out by end Q3. That is the expectation.

With that, that would be the end of any of this that we are looking at. Of what we are bringing in, not everything would be of that same quality and high margin.

If I was looking at the blended number between exports and private and all the spaces that we are looking at, I would say, for contribution margin and EBITDA margin on industrial infra, I can finally see line of sight to taking that business to 10% and beyond on profitability. Not just on EBITDA, but on profitability itself.

Industrial products, as I have shared in the past, the focus is, of course, on increasing profitability in each part. There are two parts of the business where growth is high, but from a profitability mix perspective, they are lower in profitability, which is water and air pollution control, which are our basically clean water, clean air businesses.

They tend to have lower profitability than cooling and boilers. There is a mix impact because these two are growing slightly faster than boilers, because boilers we have a very high share and finding new areas of growth is not that easy.

In cooling, which is both profitable and potentially high growth, that we need to continue to keep on the acceleration to make sure that the blended mix is also one that continues to grow on profitability. If you asked me for a number that is consistent, my thing would be continue on the profitability path and continue on the growth path, which is maintain profitability, continue growth on industrial products.

Chemicals, getting to double-digit EBITDAs is something that we've already shown in Q1. I would like to continue that.

Chemicals, I would like to say, while we have had a good Q1 and we see some visibility to continued improvement, there is commodity price pressure out there, which in between felt like would go down with the war coming kind of and the crude prices coming down. In the last week, that is again kind of something that is changing quite rapidly.

A lot of what we do in chemicals is exports, and we compete with Chinese players on the export market. That is little bit of worry on how our customers will continue to absorb the increased prices that we are doing.

We've also had the pressure of this 10% 10% tariff, which has now been put on. The US is just very tough to determine how they are acting.

Far, our customers are holding off. Some of our biggest customers don't want to work with Chinese anymore, I'm happy where we are right now and optimistic, but worried that if this hold on for too long, will we continue to be able to push our price increases through to our customers or not?

Understood. Understood.

Thanks. Thanks so much.

Thank you.

Thanks for the opportunity, sir. My question is on the ₹300 crore of order, which you mentioned that was delayed last quarter because of the logistic-related challenges.

Is that shipped now? Let's say, if you had recorded that ₹300 crore of revenue, is it right to assume that the adjusted EBITDA of last quarter could be around ₹290 crore, ₹300-odd crore because the fixed cost has already incurred, and the gross margin is roughly 45% to 50-odd percent?

That would directly go to the EBITDA. Is it the right

I don't think our gross margins is 45%, 50% at all. They're actually only two of our businesses where gross margins are 45%, 50%.

In the rest of our businesses, it ranges from 15% to 30%. In our projects business, as an example, gross margins are of the order of 15%, yeah, with 5% G&A and 10% coming down then to the profitability line.

That's a ideal kind of a business in a way. There is a range to those numbers.

Your thinking is right because in some of these cases, especially where we had exports, there was some amount of profitability that was better than our average profitability in what we could not ship. We haven't been able to ship all of it even now.

There's a chunk that has moved, and even in Q2, we'll have to be doubly aware because not only the ₹300 crore slipped from Q1 to Q2, we had a relatively bigger number for Q2 already. Because you can see with a ₹14,000 crore backlog, even if I take out about ₹2,500 crore, which is for deliveries in future years, we have a big number that is due for shipment in the year.

Each quarter, we should be looking to do ₹3,000-plus crore. That number puts a lot of burden, in a good way, on our entire supply chain and our ecosystem.

We not only need to take those ₹300 crore in, but we have to make sure that what is at the end of September, we are making sure that that also ships out. Execution-wise, there will be continued visibility and pressure on the full quarter.

The last point I think as I'm thinking aloud is our first shipment for the US, which was for data centers, a significant portion was supposed to ship out in Q1 and was supposed to get recognized in Q2. That is now shipping in Q2 and will get recognized in Q3.

Which is something we already know because, and that wasn't delay, we were ready in time. The customer, and you are hearing constantly in the US, data center projects are getting delayed because of environmental constraints and people slowing down projects and all.

The project got slowed down at the customer end. They've finally agreed to take the equipment.

It is shipping out later this month, but it will only get recognized once the customer takes possession of the equipment, which will then happen. Rajendran, our expectation is Q3 here?

You're right, Ashish, in terms of revenue recognition.

Revenue recognition and then the margin recognition also will show up in in Q3. That said, Q2, we've got a lot of good orders and some other adjustments, which are all relating to LD reversals and cash collections, etc.

We expect a good Q2 on profitability the hit that we took in Q2 last year. Q2 Q2, Q3, Q4, each one now should be a significant improvement over last year.

Understood, sir. Secondly, I think in the presentation slide number 17, you had given the table of that more than ₹100 crore of projects in the industrial infra segment.

Wherein the changes in margin and the number of counts also have been given. Can you share the absolute amount of that table?

Because I think we could not able to understand based on the number of counts. See,

there were two other metrics, which is the absolute amount and the profitability of individual projects, which we thought we shouldn't share because then it starts to share competitive information, and that was not correct. I see your point that the absolute amount is something that would be helpful.

I can't commit to this right now, but I'll talk to Rajendran and see if that is something that is reasonable to share or not, yeah?

Sure, sir. Thank you.

That's all from my side.

What I can share is that if I remove this ₹97 crore number, in absolute numbers, as part of our total execution, through execution, we add to our margin and not subtract. Which is something that we can share.

The PSU projects were the only exception, and until this ₹91 crore, even including the PSU projects, in aggregate, we were through execution adding to our margin and not subtracting.

Understood. Sure.

Sure, sir. Thank you.

Look, there was a lot of questions which were all across on our margins and our profitability. I hope we did justice to sharing every bit of it with complete transparency with all of you.

It's not a quarter that is, A, we are proud of, or it is reflective of the company that we are building at Thermax and the performance that we can deliver at Thermax. That is very well understood by all of us and by our board as well.

I'll leave it at that. Thank you very much for your questions.

If even afterwards over the next month or so, as you have more questions and there is more in-depth discussions needed, compared to previous quarters, we'll be more amenable to having discussions. Be patient, we need to go focus on the business itself, but we will, through the remaining of the quarter as well, be open to sharing more from Thermax.

Thank you.