Thermax Limited (NSE: THERMAX) Q1 2026 Earnings Call dated Aug. 01, 2025
Corporate Participants:
Unidentified Speaker
Bhumika Nair
Rajendran Arunachalam — Chief Financial Officer and Executive Vice President
Ashish Bhandari — Managing Director and Chief Executive Officer
Analysts:
Unidentified Participant
Ravi Swaminathan — Analyst
Mohit Kumar — Analyst
Bhavin Vitlani — Analyst
Pulkit Patni — Analyst
Manit Mahawar — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the third MAX Q1 FY26 earnings conference call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Ms. Bhumika Nair. Thank you. And over to you ma’.
Bhumika Nair
Thanks. Good morning everyone and a warm welcome to the Q1FY26 earnings call of Thermax Limited. We have the management name represented by Mr. Ashish Bhandari, Managing Director and CEO and Mr. Rajendran Adonachalam Group CFO and Executive Vice President. At this point I hand over the floor to Mr. Bhandari for his initial remarks post which we’ll open up the floor for Q and A. Thank you. And over to you sir.
Bhumika Nair
Good morning and a very warm welcome to everyone that’s attending the call. It’s a pleasure to be hosting you to share the results of our quarter one performance. You would have all seen the press release, the headlines, the top items to consider. First is revenue flat which is on negative 2% which is different from our performance over the last three years. It’s the first quarter where quarter on quarter our numbers are slightly down. Second is the order book which is 7% and so the guidance what should we expect for the year as a whole? And third is the jump in profitability, the reasons behind and the underlying strength of the business.
So if I take the three things one after the other, revenue. As you know we had a reasonable Q4 which we had predicted as well that we would, we would like to cross 3000 crores in Q4. Last year as we started this year we had a good backlog but the backlog for conversion for Q1 was of the order of about 2,400 crores. We did relatively lower than that because we had a few project pushouts where customers did not pick up equipment and this was slightly more than what we would have predicted or more than slightly more than what we would have predicted.
Some of the reasons that I’ve heard from customers relate to project sites running slow. Rains have come in early so I could not finish my civil in time so I can’t pick up your equipment, etc. Overall, no red flags, very little relating to do with customers not having money to pay or the project being cancelled or anything. The impact is temporary. As the revenue clears, we will actually be able to deliver reasonably on the bottom line as well. That’s the first point on orders growth of 7% below our expectations and especially all across actually the orders.
I don’t see a particular red flag. Again, we are predicting a good Q2 on industrial products and heating, which is the core part of industrial products, the most profitable part to come back stronger in Q2 we have a reasonable pipeline to account for that. The slowdown on the heating side has largely been driven by the ethanol sector and sugar and distilleries where there is a big pipeline. But the financial closure of the projects is taking time and we don’t book the order until the financial closure happens and we get the LC payment or a significant upfront payment at which time we recognize those as orders.
So we have got multiple handshakes but not enough closures that we would like that in July started to get better. And we expect in that sense a reasonable Q2 as well. Even on industrial infra, we expect good Q2. Q1 was okay. I’ve been saying for some time that we would expect to see big projects starting to come in. I think Q2 will be that time where you should see a reasonable bump on our orders. Yeah, Q2. And at least if not Q2, one particular order where we have shaken hands in first week of October. So that this is a time frame where things will happen in chemicals.
That’s where I have a slight concern. We have added quite a bit of capacity, we have added capability, a bunch of stuff to build out our growth. And that is partly the reason why our profitability in Q1 Q1 came down. And during our discussion we can talk about this at longer length. Chemicals, some parts we will recover from quickly. But us we do have an exposure to on the chemical side which we will have to understand how to work through and sort that out. The expectation in many circles is that the tariffs thing will get sorted in relatively quickly.
But if it does not, then on our chemical side we would have bit of an impact to our chemicals business. Even otherwise we have got lot of growth expectations and we just need to make sure that we deliver on that growth, which we did not in Q1. Okay, broadly these were the big things I wanted to start with. We’ve covered revenues, we’ve covered on the profit side, we’ve been saying it for some time. There was of course a big 56 crore impact from incentives that we received from the government. But even if I leave those aside, we have about 1.2% improvement in margins, which is entirely driven by basically not having as much bad stuff as we did last year, Industrial Products, which is where margins came down.
But you can see revenue also came down and Industrial products now has a reasonably big backlog. As that backlog gets delivered in the rest of the year, we pick up on profitability as well. So with that is the headline messaging. We have got lot to share on new products, hydrogen, even some of the chemical things that we are doing all across which I hope to answer from the Q and A that we get into. So with that preamble, let’s just jump into the questions and answers.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Ravi Swaminathan from Avendra Park. Please proceed.
Ravi Swaminathan
Hi sir, thanks for taking my question. My first question is with respect to the large orders which are there in the pipeline. They take a two, three year kind of view from the major sectors like steel, cement, oil and gas and thermal power. How do you see the traction from end customer driven capex recovery and subpart to this question is how is the pricing of key products like boilers etc. Are they stable or is there an improvement or a decline based on competition and supply. So if you can give your thoughts on these.
Ashish Bhandari
So first overall pipeline, as I’ve been saying for a couple of quarters inquiry, pipeline robust and in some sectors some of the highest that I have seen. On top of the sectors that you have talked about I would add power which until a year ago was not in the scheme of discussion. Today there is a fair bit of pipeline that we have that is comprised of power and even thermal power. And these are not just large projects, these are even kind of 200, 300 medium projects that we talk about, megawatts which ultimately result in a relatively large boiler order for us.
Those are also in the discussion and I would add international to this as well where also there is a pipeline. As I look at the future forecast, tough to see four years down the road, I can only see the next 12 to 18 months and some of the sectors are cyclical, refining in petrochemical as an example is cyclical. Right now we don’t see too many projects that will go in for finalization in the next couple of quarters. But there are projects that are developing where the inquiry cycle has started and the ordering may happen in Q4Q and the next year and beyond.
So there’s always stuff that is going on, cement continuous set of projects, new things. Still there is a reasonable pipeline. Some of our win rates in steam still have been below what we would like. We would like to see that get better. Also overall don’t see a concern on a pipeline of projects international also Middle east, we starting to do better and better. Africa, even Latin America. Now we have a developing pipeline of projects which is more than what it was previously. Southeast Asia as well. To your second point on pricing. Pricing is stable. It is competitive on the equipment side.
When we do things in Industrial Infra, for example where we sell large boilers etc. Our equipment margins continue to be of the order of 5, 7% its services that we are able to pull the profitability up, that remains on the other side, commodity prices have been very stable and potentially slightly going down. Also in the environment that we have certainly in the last couple of days, steel has been stable, but copper and some of the other commodities have trended downwards. So I would say stable is a better way for me to put it instead of saying it’s going down or something like that.
Yep. Okay. I hope I answered your question. Waste to energy is one more emerging segment. Waste to energy and the whole kind of sugar distillery space are also relevant markets for industrial intra going forward.
Ravi Swaminathan
Understood sir. Can we say from order inflow growth perspective, last two, three years it has been in that high single digit kind of range. Can it, with these kind of robust ordering pipeline being there, can the trajectory move into mid teen kind of order and flow growth? Is that something?
Ashish Bhandari
I certainly expect that. I think if you take a look in the last couple of years in particular industrial infra is where we had taken a step back saying that the kinds of projects we lose money on, we didn’t want to do that. So we took a step back from large government projects, FGD projects. And I’ve been saying even before some of the news on FGD came out that in our estimate we don’t have any FGD projects. And. And so in the other parts of the business, including in industrial products, we have been delivering double digit growth and that is made up of I guess what I call internally as good calories.
And now even on industrial infra, now that the pipeline is developing on what is reasonably good calories. I do think and with international also coming in across the board, I would expect double digit growth. Yeah.
Ravi Swaminathan
And my second question is if I.
Ashish Bhandari
May just take a break. You can come back because we typically take only one question. You’ve taken two. I’m sure your question will get asked by somebody else. But at the end of the hour if it’s not and we have time, I’ll take your question again. Thank you.
Ravi Swaminathan
Sure.
Ashish Bhandari
Yeah. Thank you.
Ashish Bhandari
Next question please.
operator
Thank you. The next question is from the line of Mohit Kumar from ICICI Securities. Please proceed.
Mohit Kumar
Good morning. Thanks for the opportunity. My question on the chemical business. I think in this quarter the EBIT margin was pushed. Declined steeply. I think it pushed it come around 9.3% but it’s. Please explain the weakness and how do you think about as we move forward and any color on the dependence on export to the U.S.
Ashish Bhandari
Okay. And a very pertinent question. The performance in our chemicals business was below expectations we had set. And we expected a reduction especially in Q1 where our new capacity in Jaghadia came online. The depreciation impact was there also for construction chemicals for flooring with Vedro getting prepared for ocq. Even on the international side, adding small capacities in Indonesia, adding manpower in Southeast Asia. For growth we had added feet on the ground, we had added capex. So we had a cost impact that happened commensurate to that cost impact. We haven’t delivered on the growth. So that is clearly a problem that we had.
We also had some one time bit of impacts where certain deliveries just missed out. And some of our specialty chemicals had some timing issues. And then there were some one time gratuity related cost this year which was a double effect from a good guy on some reversals last year. So there was about 4, 5 crores of that impact which will get cleared out. So in my mind the margins will shift to about 1213% in Q2. But that jump from 1213% to 1617, which is where the direction and the guidance that we have given for a stable business that will.
That we need to work by delivering the growth. Yes. And that is where my eyes would be. And I expect the team with everything that we have done to come back on delivering the growth. I was confident that we were still on the right track. The US thing is bit of a dampener. What we are seeing overall, not just US but US and Europe, very aggressive pricing from China and not only aggressive pricing from China. On top of that Seeing this impact of tariffs creates bit of an issue. Not as much for Q2 because by the time some of the impact of the tariffs, lot of what we need to deliver hopefully will be out of the way.
The way the tariffs are announced is that anything that is on the water by 7th of August is free of tariffs. It is after the seventh. Anything that goes on the water and is not delivered until a particular date in October, all of that will get impacted. So Q2 the impact is relatively less. But if this continues for longer then there will be an impact on our chemicals business. Too early to say how this will pan out. We just need to wait and watch just a little bit.
Mohit Kumar
How much is US export?
Ashish Bhandari
Last year export was close to $20 million. But not all of that. What we call out is US exports is to us. Some of it goes to Mexico, Latin America, etc. What was us going to us specifically for this year according to our plan was about $15 million.
Mohit Kumar
Thank you.
Ashish Bhandari
Thanks. Sorry, just two just chemicals here. On top of that we have our cooling products as well. If I combine both of them, our exposure to the US is somewhere of the order of $30 million.
Mohit Kumar
Thank you.
operator
Thank you. The next question is from the line of Bhavin Vitlani from SBI Mutual Fund. Please repeat.
Bhavin Vitlani
Good morning Ashish and heartening to see the margin performance of the industrial infra piece. My compliments. So I have two questions that you have asked. First is if you could talk in the four sub segment of the industrial products piece in terms of outlook, how do you see them moving forward? That’s question one. Second is actually a follow up of what you just mentioned to the previous participant. Could you call out the underlying EBITDA margins in the chemicals and what was the one off? Because you mentioned significant increase in depreciation as one of the reasons.
These are my two questions.
Ashish Bhandari
Okay, I’ll take the first one and I’ll take. Let Rajendran take the second one and give you some more insights into that on the four parts of our industrial products business. Water and enviro which is where we do clean air and pollution control related equipment, continue to grow water in particular with desalination, zero liquid discharge. Both of these as product categories that we are working with and doing reasonably well on and having some elements of product differentiation also coming in the pipeline is good and we have been growing as well. Cooling has got some amount of exports exposure.
We have planned this year for a very high amount of growth. That growth we could not deliver in Q1 to the extent that we would like. But the pipeline still exists and we are confident. And even on things like some of the newer products that we have released, even in Q2 and Q3, the pipeline is close to 100 crores. Where our products are like we think if the customer buys into the product methodology then competition is relatively low. And these are in many of the emerging sectors that are of data centers and the like. So those are also part of our customer base.
But I would like to see that growth number coming in even on exports in as like gas power is going up again in data centers. In combining that with absorption chillers is one more interesting space that is emerging. So that leads to discussion on heating, which heating Q1 was not as good as we would like. As I shared before, the biggest sector was around the ethanol market which slowed down quite considerably. But I think there are a lot of inquiries in the mix. We just need to see how these inquiries close. Financially, July was quite nice and we are planning for a good Q2 overall.
Overall, if I talk to the industrial products team, I have gone through very detailed reviews of the business pipeline, et cetera. The trend that we have been on. On good steady year, on year growth, growth, managing one slowdown on one side with a good thing showing up on the other. As I talk to our distributors channel partners International, I think that theme on steady growth continues. I don’t see a particular concern around that. And as that growth gets delivered, I think even the profitability numbers should come through like they did last year. So I hope I’ve given you some amount of insights without giving you very specific breakdowns on how are we seeing the four subparts of industrial products.
Even international which we have added quite a bit of capability. Our pipeline continues to get better within industrial products. I mean I would like to international to cross thousand crores in order book exports from India on top of it kind of Dan Stoker and PTTI and some of the other businesses. Yeah, I’ll pass it to Rajendran to share with you. Kind of bit of the waterfall on the cooling including depreciation GNA increase. Those are the two big impacts on the cost. Hi. Some of the expensive increase that happened in quarter one for us on the chemical business side is one has been the deposition in the new plant.
Bhavin Vitlani
Pardon me, if you could speak a little louder up a little not very audible.
Ashish Bhandari
Okay. Is it better, Gavin?
Bhavin Vitlani
Yes, yes, yes.
Ashish Bhandari
So some of the expensive increase that has happened in Q1 in our chemical business, I think as I mentioned earlier, depreciation on the new plant, plus the associated employee cost increase. And we’ve had one off an expense item relating to a worker settlement that has hit our numbers, plus the annual inflationary expenses that happens in our general and administrative expenses. Those are the three bits that I would say has impacted our financial plus.
Ashish Bhandari
The headcount etc that we have added which is part of DNA beyond just the salary increase.
Bhavin Vitlani
Yeah. Thank you so much.
Ashish Bhandari
Thank you.
operator
Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please proceed.
Pulkit Patni
Sir, thank you for taking my question. My first question is already answered. My other question is regarding the international business. So as we look through multiple segments and chemicals, you yourself highlighted the Chinese are very aggressive. But when we look at industrial infra industrial products in the international market, how do you gauge our competitiveness? How do you see our ability to generate decent margins in those geographies? If you could just talk about some of those qualitative points where we are confident that this business will be reasonably profitable, that will be very helpful.
Ashish Bhandari
So from our current business that we do the export portion where we make in India and we send it outside, whether it’s industrial infra or industrial products, our margins are relatively the highest if we put up a particular size power plant in India and I do that outside India. On the project side, as an example, when I do it outside India, I tend to make more money. Similarly, if I the same boiler that I provide in India or the same chiller, if I do it outside India, I tend to make more money both at a margin level and even at the level both casualties.
From a competitiveness basis, we tend to compete reasonably well. The two parts to that answer is first, in many of the products that we sell, if you take a look at water equipment, boilers, chillers, etc. Many of them have the nature that you need to work with the customer to design the product or to understand the application and provide the right product for the application and then to be able to provide services etc. Around that. When we are able to do that well, we are able to compete reasonably well. We see the Chinese in particular in Southeast Asia, in Middle east as relatively less so in Africa relatively less.
So South Asia is where we see the Chinese the most and in many cases we compete head on and in cases we lose as well. In addition to some of the local competitors that we see as well. Where does growth come from over time? Growth comes from two parts. One, especially for the larger projects for industrial infra qualified for ad custatially for larger Customers especially in oil and gas and refining and petrochemical where some of the largest projects. So for example over the last few years we’ve been working and we are now qualified at adnoc.
So anytime a project happens at Adnoc then it provides termax opportunities to provide boilers and other equipment, boilers in particular. And some of those projects can get bigger. So in Middle east as you look to get qualified customer by customer, then that pipeline develops. They are not qualified at Aramco as an example and we would like to check mark those boxes and you do that when your competition is more with European players etc. Where we can compete relatively well. The second is for customers in many of our markets to get comfortable with. Thermax is in Southeast Asia where the shift to biomass is happening, where pollution norms are getting tougher, water norms are getting tougher.
Thermax to establish name takes some time so customers use the product. Then the word of mouth gets out. You have to do showcase plans, showcase facilities and as you continue to do so that you can continue to build a pipeline and win. So they are all like each year you do something and then next year you stand on the shoulders of where you finished the last year and you continue to do better. Okay, got it. I hope I answered your question.
Pulkit Patni
Yes, thank you for that.
Ashish Bhandari
Thanks.
operator
Thank you. The next question is from the line of Manit Mahawar from UBS. Please proceed.
Manit Mahawar
Yeah, my question is more on segment two. I’m more sorted on segment one. Segment one I think if you see last three years commendable performance growth, profitability and more to come in segment two and I consider Babcock as a very the best part of that which can easily be 2x business easily. And please correct me if I’m wrong with a very significant margin delta from 8% level. So in segment 2, you know, some of the questions were around that, particularly on the power cycle in India and globally. What are the bottlenecks that you’re facing right now and maybe some portion you can cover on segment two.
Thank you Ashish.
Ashish Bhandari
So the bottlenecks that we face are three bottlenecks. One is the highest end of the segment which is the supercritical is a portion on how we want to look at that sector. And we have been very careful not to do something that may tomorrow look like one more FGD kind of project. Yes. So we have stayed away from going into long multi year projects with exposure to civil construction related risks. Completely walked away. And in return we have walked away from what was perhaps on the power side, the biggest piece of. The biggest piece of the pie.
Yes. So that portion is. We will still have a role to play but how big remains to be seen. Certainly won’t be to the extent that bhel, ntpc, I mean bha, LNT etc will do. The second part is thermal beyond supercritical which is the AFPC piece and for captive that portion over the last year has suddenly mushroomed and become bigger and bigger and there we will have a good role to play because we know how to work this very well. Customer customers prefer Thermax to a large extent and are comfortable working the project in a way that suits our strengths as well.
So this particular portion quite comfortable with international also in many, many markets our competitiveness continues to improve. Newer segments like waste to energy etc. We continue to build our capability, continue to be leaders as well. On the project side which is the EPC portion there, in addition to some of the work that we are doing in power, we’re really looking at advanced biofuels, ethanol, carbon capture those as emerging segments where we are building capability to today looking to do demonstration projects that are relatively worthwhile and then continue to work this for the next two, three years.
But I think by 2028, 29, 2030, some of these sectors could be really big and we want to be ready for when those sectors become really really big. The pipeline overall in what you call out this segment two is the biggest. That opportunity pipeline is the biggest that I have seen in the last four years except for that one period in 2223 when we took all these NRL and the FGD projects which haven’t panned out well. So we are very conscious on doing things that align with our strengths and we will be aggressive as long as these are in spaces that we we want to be aggressive in.
So which is why I really like the backlog and the kinds of things we are developing now as examples of the kinds of things we want to do. Yeah Amit, I hope I answered your.
Manit Mahawar
Question Answered Ashish Can I ask once more or please sure. Thermax is a very organic company and my observation limited of last 20, 21 years is that the way bottom up Salesforce, you know business heads, SBU heads have scaled up. That has been the, you know, core and strong strength of tarmacs at the same time. Do you think and are you confident. That your sales people who go out. And bag large orders or medium size order for Thermax, do you think you are confident that the translation of orders across segments you know, will happen because the cycle, seemingly in segments, is not that bad. So thoughts on that and that’s it. Thank you, Ash.
Ashish Bhandari
I think the organic theme continues. It’s the same team that is translates across. In that sense, the DNA is similar. Many of the businesses have got legacy in leadership, which is very stable, very well established. We need hunger and we need aggressiveness on the ground, which I see plenty of signs all across. So as an engine which is primed, I see no concerns at all (Ends Abruptly).