Thermax Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

2 Arunachalam (Group CFO & EVP), Ashish Bhandari (MD & CEO)

Analysts

10 Aditya Mongia (Kotak Institutional Equities), Amit Anwani (PL Capital), Amit Mahawar (UBS), Atul Tiwari (JPMorgan), Bhavin Vithlani (SBI Mutual Fund), Dhavan Shah (AlfAccurate Advisors), Mohit Kumar (ICICI Securities), Pankaj Tibrewal (IKIGAI Asset Manager), Rahul Gajare (Macquarie Group), Subhadip Mitra (Nuvama)

Financials & KPIs

Geographic & Segment Commentary

• Industrial Products: Double-digit YoY revenue growth despite ~₹300 crores of shipment deferrals and ₹10 crore commodity impact. ZLD + ETP is now the single largest driver of the water business, supplemented by desalination; air pollution control retrofits, hybrid CLCT cooling, heat pumps and biomass boilers underpin a solid double-digit pipeline. Steel inflation (52-53% → 61%+ for plates) pressures Q1-Q2 margins; cooling backlog is weighted to Q3-Q4 where profitability recovery is expected.
• Industrial Infra (Projects / TBWES): Backlog quality is strong outside legacy PSU projects; ₹91 crore provision taken on the one problem government project. FGD handovers scheduled in Q1, Q2 and Q4 (no further surprises expected), while HRRL slips to Q1 FY28. TBWES is adding capacity in-plant and via ecosystem partners for supercritical (at least one repeat order expected), sub-critical captive thermal, waste-to-energy, and U.S. data center power/pressure parts.
• Green Solutions: Bio-CNG – one of four EverEnviro projects delivered PGTR successfully, second is past 50% PGTR, remaining two (affected by wet monsoon feedstock and electricity challenges) complete PGTR in August-September; no new orders for two years, with ₹7-8 crore quarterly carrying cost. FEPL – ₹20 crore loss from Tamil Nadu approval delays and restructuring; substantial majority stake to be sold to an external investor in FY27. TOSIL – booked largest-ever order of ₹120+ crores with ₹2,000 crore 10-year revenue outlook; run-rate above ₹600 crores, targeting ₹800-1,000 crores over two years.
• Chemicals: Q1 turnaround with volumes returning; double-digit EBITDA achieved and ≥20% growth targeted for FY27. Risks: commodity price volatility and 10% U.S. tariff – some customers deferring purchases, while others are shifting supply away from Chinese players.
• International: Middle East (refining/petrochemical) and Africa pipelines remain strong; two Q1 handshakes of a few hundred crore rupees pending advance payment to be booked. U.S. data centers span four business lines – cooling is most differentiated (only 1-2 global competitors), followed by TBWES boiler/pressure parts, then water and chemicals; first U.S. equipment shipment recognized in Q3 with two more cooling wins guided Q3-Q4.

Company-Specific & Strategic Commentary

• Legacy Portfolio Exit: FY27 is reaffirmed as the final year of legacy drag – government EPC projects (HRRL exits to Q1 FY28), FGD (all handovers by Q4), Bio-CNG PGTR (closed by Q3) and FEPL (majority external investor this year). A new execution-transparency slide covering 35 projects > ₹100 crores shows non-PSU projects add to as-sold margins; PSU projects are the only exception.
• Project Selection Reforms: Pre-bid engineering is now mandatory – Thermax does the majority of engineering itself (3D models, granular costing) or walks away; PSU/government bids only at risk-commensurate prices with unique capability (e.g., Kandla green methanol using indigenous syngas-to-methanol technology, an exception project < ₹100 crores). Supercritical contracts exclude civil/BOP exposure and include commodity price and FX change provisions.
• Data Center Franchise: Four business lines exposed (cooling, TBWES boiler/pressure parts, water, chemicals); MOUs inked with two major U.S. solution providers to embed Thermax cooling technology; management expects two more U.S. cooling wins in Q3-Q4 with booking after current handshakes.
• Hydrogen Build-Out: ~40-50 person dedicated team; HydrogenPro partnership for alkaline electrolyzers; SOEC demo plant (global showcase with marquee partners) by end-FY27; first order handshake completed – announcement/bookable next quarter, revenues from FY28.
• TOSIL Scaling: Marquee order wins in Q1 including largest-ever order (₹120+ crores with ₹2,000 crore 10-year revenue outlook); run-rate already above ₹600 crores with a visible path to ₹800-1,000 crores in two years.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Legacy Government Project: Cost Overrun and Exit

• Question: Can you quantify the size of the problem project, how much execution remains, and the cumulative loss? (Rahul Gajare, Macquarie Group)
• Answer: Original order was ~₹1,200 crores booked in FY22; the project now runs at negative-teens profitability with cumulative loss close to ₹150 crores; invoicing is 74% complete with 26% (construction-heavy) to go over the next four quarters; the engineering partner has formally declared engineering 100% complete. The project itself was "a mistake to take" – the engineering partner had exposure of < ₹100 crores vs. a > ₹100 crore hit, and it was in an area new to Thermax. (Ashish Bhandari)

PSU/Government Exposure and Bidding Discipline

• Question: What proportion of the order book is government/PSU, and will you continue bidding for such projects? (Atul Tiwari, JPMorgan)
• Answer: Only ₹300-400 crores of ~₹14,000 crore order book remains (less than 5%, heading toward zero). Not a flat "never" – Thermax will bid where it has unique capability (e.g., Kandla green methanol with indigenous technology, a small IOCL project) and price risk correctly, but the old L1-style government bidding approach is over; no new large government multi-year civil construction projects have been taken for three years. (Ashish Bhandari)

Execution Credibility and Profit Warning Feedback

• Question: Commentary and execution have diverged repeatedly; shouldn't you issue a profit warning rather than surprising investors every quarter? (Pankaj Tibrewal, IKIGAI Asset Manager)
• Answer: Acknowledged the feedback as valid; the board has been "brutal" in its expectations. The engineering change arrived in early June, took two weeks to size, and prudent loss accounting (including medium risks, site extension, LD reserve) produced the ₹91 crore number; clearing through board and auditors took additional time. The profit-warning practice (as used by IT companies) has been specifically discussed by board members and is under strong consideration, though not committed. (Ashish Bhandari)

Talent, Restructuring and Growth Trade-off

• Question: Has post-COVID talent restructuring broken Thermax's execution track record, and will avoiding PSU projects compromise growth? (Bhavin Vithlani, SBI Mutual Fund)
• Answer: The top five people on the problem projects each had 20+ years of Thermax project experience – talent was not the issue; ex-employees are now seeking to return. External leadership has worked well: TOSIL booked its largest-ever order (₹120+ crores, ₹2,000 crore 10-year revenue outlook). Growth will not be compromised – FY26 orders were all in desired areas (Thermax said no to NTPC supercritical on terms), and the FY27 pipeline is expected to exceed last year's order inflow. (Ashish Bhandari)

Data Centers and Hydrogen: Competitive Positioning

• Question: What is your edge in data centers and hydrogen, and how large can these become? (Aditya Mongia, Kotak Institutional Equities)
• Answer: Four business lines serve data centers – cooling (biggest differentiation, only 1-2 global competitors, MOUs with two major U.S. solution providers, two more wins expected Q3-Q4), TBWES boiler/pressure parts for U.S. power plants serving data centers (competition is U.S.-based, not Chinese; speed and engineering trust matter), then water and chemicals (relatively standard, competitive). In hydrogen, only one other Indian company has comparable capability; HydrogenPro partnership for alkaline, SOEC demo plant by end-FY27 as a global showcase with big-name partners; first order is handshaken and will be announced/bookable next quarter. (Ashish Bhandari)

Order Inflow Drivers for FY27

• Question: What will drive order inflow beyond last year given PSU constraints, and what is the order book margin profile? (Amit Anwani, PL Capital)
• Answer: Drivers: at least one supercritical repeat (possibly more given market capacity), Middle East/Africa refining and petrochemical equal-or-better than last year, U.S./India data center pipeline, captive sub-critical thermal, waste-to-energy, Bio-CNG (if policy opens in Q3-Q4), chemicals (20%+ growth), and TOSIL. Two sizeable Q1 handshakes (a few hundred crore rupees) could not be booked pending advance payments. Industrial products maintain double-digit growth; outside PSU projects, execution adds to as-sold margins rather than subtracting. (Ashish Bhandari)

Bio-CNG Policy Catalyst

• Question: What policy changes are you expecting, and in which segments? (Mohit Kumar, ICICI Securities)
• Answer: The policy expectation is specific to Bio-CNG: a 20-30% price increase for Bio-CNG (straight economics improvement), higher blending mandates into CNG, and state benefits under the Sampoorna scheme; announcements are expected around August 10 at a major New Delhi conference. Green methanol via SECI (e-methanol and biomass-to-methanol) is a second policy-driven pipeline, with Kandla as the showcase execution. Core businesses (boilers, cooling, water, chemicals) have no policy dependence. (Ashish Bhandari)

Margin Normalization and New Normal Profitability

• Question: Beyond the ₹300-400 crores of legacy orders, is the pain over, and what is the new normal EBITDA margin? (Subhadip Mitra, Nuvama)
• Answer: Yes – the industrial infra legacy is the last remaining portion (NRL + FGD mix); Bio-CNG PGTR closes out by Q3. There is now line of sight to 10%+ profitability on industrial infra, not just EBITDA. Industrial products will maintain profitability while growing (mix impact from faster-growing water/air businesses offset by cooling acceleration); chemicals has already shown double-digit EBITDA in Q1, though commodity and tariff pressures remain live risks. (Ashish Bhandari)

Shipment Catch-up and Margin Math

• Question: Has the ₹300 crores of delayed shipments shipped, and would absorbing it have added ~₹290-300 crores of EBITDA? (Dhavan Shah, AlfAccurate Advisors)
• Answer: Gross margins are not 45-50% – only two businesses carry that level; projects run ~15% gross margin with ~5% G&A, yielding ~10% profitability. Not all ₹300 crores has shipped – a chunk moved into Q2, and Q2 already had a larger base, so execution pressure continues. The U.S. data center shipment was ready in Q1 but the customer slowed the project; it ships this month with revenue and margin recognition in Q3. Q2-Q4 should each be significant improvements YoY on LD reversals, cash collections and shipment catch-up. (Ashish Bhandari)

Key Takeaway

Thermax posted ~7% revenue growth in Q1 FY27, hit by a ₹91 crore cost-to-completion provision on a legacy ₹1,200 crore government EPC project, ~₹300 crores of deferred international shipments on Gulf War freight escalation, a ₹20 crore FEPL loss and ₹7-8 crore quarterly Bio-CNG carrying cost – management called it the toughest quarter versus expectations in years. FY27 is reaffirmed as the final year of legacy drag: FGD handovers by Q4, HRRL to Q1 FY28, Bio-CNG PGTR closure by Q3, and FEPL ceding substantial majority to an external investor. Growth engines remain intact: U.S. data center cooling (two wins guided Q3-Q4), supercritical repeats, hydrogen's first order bookable next quarter, TOSIL scaling to ₹800-1,000 crores, and Bio-CNG policy catalysts (20-30% price uplift) expected imminently. Guidance: 2-3 quarters above ₹3,000 crore revenue, FY27 order inflow exceeding last year, 10%+ industrial infra profitability. Risks: commodity volatility, U.S. data center delays, and the problem project's final four quarters of execution.