Thermax Limited (NSE: THERMAX) Q3 2025 Earnings Call dated Feb. 07, 2025
Corporate Participants:
Ashish Bhandari — Managing Director & Chief Executive Officer
Rajendran Arunachalam — Executive Vice President and Group Chief Financial Officer
Analysts:
Bhoomika Nair — Analyst
Amit Anwani — Analyst
Himanshu Upadhyay — Analyst
Ankur Sharma — Analyst
Bhavin Vithlani — Analyst
Jonas Bhutta — Analyst
Bharat Sheth — Analyst
Harish Bihani — Analyst
Subhadip Mitra — Analyst
Parikshit Kandpal — Analyst
Amit Mahawar — Analyst
Anupam Goswami — Analyst
Aashish Shah — Analyst
Mahesh Patil — Analyst
Teena Virmani — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q3 FY ’25 Earnings Conference Call of Thermax, 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 touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, ma’am.
Bhoomika Nair — Analyst
Thanks, Aleric. Good morning, everyone, and a warm welcome to the Q3 FY ’25 earnings call of Thermax Limited. We have the management today being represented by Mr. Ashish Bhandari, Managing Director and CEO; and Mr. Rajendran Arunachalam, Group CFO and Executive Vice President.
Without any further delay, I hand over the floor to Mr. Bhandari for his initial remarks, post which, we’ll open up the floor for Q&A. Over to you, sir.
Ashish Bhandari — Managing Director & Chief Executive Officer
Thank you so much, Bhoomika, and welcome everyone to the Q3 review of our numbers.
You can see the numbers. It was a difficult quarter and the results were below our expectations. There were times in the quarter where we knew it was going to be tough, but the end result was — had some things that were surprising to — to me as well from a miss point-of-view. That said, I expect a strong quarter-four, potentially even a very strong quarter-four and request that you look at our performance and you evaluate it as the second-half of the year overall.
My confidence stems from three parts. One, we had a miss on revenues that was to the tune of INR500 odd crores with INR60 plus crores of profitability sitting out there. And this backlog, we could not clear out in the last couple of weeks. A little bit of it, this always exists, but this particular quarter was more than usual. And the good part is in the beginning of January, we were able to clear that. Not only that a repeat of this does not happen in this quarter, we are putting additional safeguards. In a simple tone, I would say that we have seen — which is, I think last-time also I talked about a pattern where customers would shake hands, but the orders wouldn’t come.
The flip of that was goods that were manufactured, but the customers didn’t pick it up. And our backlog is good. We could have managed this better and we will manage this better. If this customer is not picking-up, there are others that we can put earlier in the list and make sure we continue to deliver on our revenue number. That’s the first thing.
Second, on project execution, this has been a challenge for us on two fronts. One, FGD and specifically within FGD, Mython, which was our first project, one of the first projects that Thermax had taken is now going towards conclusion. And as part of that finishing the last bits, we had more costs that we anticipated. That said, in this quarter and hopefully beyond, some of our change orders, claims, retention, money, etc., that should start to get released. Some of that has happened started in January itself. So we should see a much better performance in Q4 and I’ll share what the next year looks like as well.
Second, Bio CNG, Bio CNG has been a growth area for us or at least called out as a growth area. We have invested now more than INR100 crores in this space. And we have taken hits in the past. Even in the last quarter, I had said that in — by this time around we should get to some conclusion, some understanding. And I’ll share, I think, we have had some understanding. We have taken a further hit. We now see some light at the end-of-the tunnel and we’ll talk about that as well. So all of that happened in this particular quarter.
I would say despite all of this, we were able to put out the numbers that we did, which to me has shown strength if the backlog and there are good portions of Thermax that are quite profitable right now, which is why despite a couple — and the third thing, I mean, part of the second only, but the first two only, I’ll talk about the orders next. Earlier in the year, we had a INR21 crore cash that came from as interest payment from the income tax department. In this quarter, the income tax department has said they’ve given us that money in error. And so, while we are looking to discuss this and have state our case and do all that as prudence, we have reversed this INR21 crores also that also happened in this particular quarter.
Third, on the order side, it was — and we’ve been soft on the project side for a — for quite some time. And you can see in the EPC portions of our — where we take our large projects, which are greater than INR100 crores, we have had absolutely zero now for — for several quarters. And a lot of it was desired by going into spaces which were more profitable and certainly not doing government projects you — we have shared with you our view on Supercritical last quarter also not taking state government FGD projects and the like or supercritical projects, etc.
Now finally and which I had shared last-time also, a bigger pipeline of projects is forming and some of these projects are as in aggregate, represent the highest number that we have seen in the last three years, maybe even longer. And that gives us confidence as we look at Q4 and then the next year that is coming that this one big portion where we have done practically nothing will start to become a much bigger portion of Thermax going-forward. Meanwhile, Industrial Products, which is where we have shown good profitability, good consistency. There you would see that our order book has grown by 40%, our backlog has grown by nearly 30% and that alone kind of continues to bode somewhat well for — for Q4 and beyond as well.
So, with that in mind, I’ll shut up and take a step-back and answer any questions that you may have. And I’m assuming many of you would have a lot of questions, and we’ll do our best to answer them. Given there are 120 people on the call, if I may request that people would ask just one question, a small follow-up or a clarification, I’ll decide if that is reasonable or not. But then, take a step-back and after we have answered everyone’s questions, which I hope will answer a big portion overall as well, we’ll come back and take follow-ons. Thank you.
Questions and Answers:
Operator
Thank you so much, sir. Ladies and gentlemen, we will now begin with 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. We will wait for a moment while the question queue assembles. And a reminder to all participants, please restrict yourself to one question. If you have any further questions, kindly rejoin the queue. Thank you.
The first question comes from the line of Amit Anwani from PL Capital. Please go-ahead.
Amit Anwani
Thanks for taking my question. For Industrial Infra, you highlighted that FGD again took an impact in Mython. So what was the kind of impact this quarter? And is any portion remaining for upcoming quarters where we can see the impact from this? And what should be the kind of value, which is pending?
Ashish Bhandari
Some of — and look, and we are reasonably conservative, which means we go through the projects and based on what we see the future look, we take whatever is reasonable in the quarter itself. With FGDs, especially as we get to the last portion and we were closing out kind of the ends, there were many cases where our contractors had claims on us. We also have claims on our customers. Based on whatever was the final judgment from our auditors, our accounting, all of that, the conservative view was to take an impact.
This quarter, Rajendran, what was the FGD impact? So, INR16 crores was the impact on FGDs for that particular project. And this was the worst project that we have. Yeah. So this is — and this is now of the two units. One unit is going for commissioning and testing right now. The second unit will go immediately afterwards in the next quarter. But both of these now are at its end.
I think this and there is a second order at Tatas where we had significant hits that we had taken previously for a very specific aspect of the project for which also now we have a claim on the customer. The cluster — the customer is reasonably understanding of our claim, but the process is slightly complicated because ultimately because FGDs are cost pass-throughs, the ultimate authority which approves those costs as a pass-through has to approve them. So it’s taking some period of time. But at least on, the portion is over now, what there should be no further hits on mython. If anything, some of the good parts should start to come through. Yeah. So overall in projects where we took a loss this quarter. Net-net on everything in Q4, we expect to turn a reasonable profit in the business.
So, I’ll use this also to share kind of my look into the quarter — in Q4 at least. I would expect us to do north of INR3,000 crores on revenue and orders and north of 10% profitability. There would be — there could always be some portions that move here and there, but at least that is the estimate that is — that’s a reasonable expectation I’ll answer what are the moving parts on this in any of the future questions that come. Thanks.
Amit Anwani
If I can ask one more question on Bio CNG.
Ashish Bhandari
I think Bio CNG will come in as a question from somebody for sure. If it doesn’t, I’ll extend the call beyond the hour and I’ll take this head-on.
Amit Anwani
Thank you.
Operator
Thank you. The next question comes from the line of Himanshu Upadhyay from BugleRock PMS. Please go-ahead.
Himanshu Upadhyay
Yeah. Hi, good morning. My question was how has the exports done for us, okay, because for last two, three years, we have not seen much traction on exports when we look at the annual reports, okay, and whereas for many of the people in the power side, the exports have done pretty well. So, what is the progress you are seeing on boilers? And…
Ashish Bhandari
Yeah. Look, on the order side, our numbers have picked-up also. You saw in Q2, we had announced INR1,000 crores for an export project. This quarter also on the export side, we have done reasonably well on standard products, which is the industrial products portion. Q3 was one of our highest products, highest portions ever from a — from an export perspective. And even from a balance perspective in the numbers that we share with the analysts, those numbers across the portfolio we have shared. And you will see in industrial products and in industrial infra of our orders balance, exports is a higher share than it has ever been in the past. I mean in the recent history.
Himanshu Upadhyay
So, can we expect the INR2,000 crore range what we have been showing for the last four, five years, we can materially cross that figure of international revenues, including export?
Ashish Bhandari
INR2,000 crores, which is about 25% to 30%, I think that’s about the range that you can — you can expect here. So INR2,000 crores to INR3,500 crores, that’s the range you can expect, yes.
Himanshu Upadhyay
For revenues, you are saying?
Ashish Bhandari
For next year, for revenues, I think I’ll have to look at of the backlog, how much will get driven. Rajendran, would you have an estimate? No, of what will get developed as revenue next year? 3,000, okay, three — about INR3,000 crores.
Himanshu Upadhyay
Okay. Thank you.
Operator
Thank you. The next question comes from the line of Ankur Sharma from HDFC Life. Please go-ahead.
Ankur Sharma
Yeah. Hi, sir. Good morning. Thanks for your time. Just one question on the order pipeline. You know both the base orders as also the large project pipeline and specifically in the context of you saying that you’re actually seeing a fairly large pipeline of projects, which probably is the highest as you’ve said in the last couple of years. So, if you could just highlight both on these orders, how are they shaping up plus your optimism on the large projects with segments and which markets are kind of driving it domestic or overseas? Yeah. Thanks.
Ashish Bhandari
On base orders, I think it has been an okay performance relative to the growth that we were seeing for couple of years, which means in the first two quarters of the year and even on the third, we’re growing, but it wasn’t growing at mid-teens and high-teens, we were growing single-digits. And even getting into Q4, we are going to get into the double-digit number, but it is a — it is light. It is still not versus the way we had seen in the past. We have lot of core products, etc., that we have released which are accounting for some of the double-digit growth that we are expecting and we have and we are so-far working on. January has been better. But private capex, which I’ve said for a couple of years was decent in my view is still short, yeah.
And especially one more area that I’ll call-out is the whole ethanol sector, which has been a source of very good numbers for Thermax for 18 months first year and slightly before that as well. That’s in slope, yeah. And many people want to put projects, governments want to want to award those contracts, they ask that 20% ethanol blending happens, all of those things are there. And what I hear is that the financing on some of these projects is not able to complete in time. And some of that is now starting to improve. In January, we did close few orders that were hanging around for quite some time. And then let’s see if some of this interest-rate moves, etc., provides a shot in the arm that is needed. So that’s the first part.
Second, on the large project side, all of this year, we have been calling out that in the steel industry, we have a pipeline that is forming. But that pipeline was just not converting into orders because customers kept changing the design of the project, kept pushing things out, kept reworking it. So now between power, steel, cement also coming back and refining and petrochemical and a portion of international. All five of them have a revival in pipeline. And the net-net of that is each quarter now I see enough that is closing, that says that the zeros that we have been doing on the project side for 3/4 that should start to reverse. Even in January, we closed one order, which was INR200 crores plus in this segment where we’ve been doing zero, one more is to close. So which is why I’m saying this quarter, I expect us to do better than INR3,000 crores in orders as well.
Ankur Sharma
I got that. Okay. Great. Very helpful. Thank you.
Ashish Bhandari
Next question, please?
Operator
Thank you. The next question comes from the line of Bhavin Vithlani from SBI Mutual Funds Management. Please go-ahead.
Bhavin Vithlani
Yeah, good morning. A couple of questions. One is on the industrial infra side, while you highlighted the losses that were there in some of the projects. But there is a larger piece, which is TBWS. If you could just help us understand…
Ashish Bhandari
TBWES has been doing extremely well. Yeah, TBWES has been turning out and you can see that. Yeah, it’s got 8% profitability, a reasonable backlog. TBWES also had its biggest project where we also took a big loss again for a government customer HRRL, which was also to the tune of INR14 crores and a negative — that was on-top of a negative INR12 crores that PGA — TBWS had taken last quarter. Despite all that, TBW turning profits and its backlog is very nice. Yeah, so the TBWES should have a good few quarters coming up.
Sorry, your next question?
Bhavin Vithlani
No, no. So what I was actually trying to understand, if you split the industrial infra into TBWS, the clean revenue and margins ex of these one-off losses and ex of TBWES, what is the clean revenue and margins ex of these one-offs in the industrial entropy. So, I just want to understand the underlying profitability on a sustainable basis.
Ashish Bhandari
There are four paths into industrial infra, one is TBWES which is where we do these bespoke boilers. Then we do what is called as large projects which is FGD and large kind of projects, etc. Then we do small projects, which is where we do ethanol, small kind of sponge iron and variety of different power plants, which are typically EPC but INR50 crores in less and the 4th part is bio-CNG and the fifth part I guess is services. So TBW yes you guys can see the number TBWSS services also part of it, you can see. We do about beyond what the services that we do in TBWs, we do O&M services, which is where we operate plants that we have done EPC on, which is about INR125 crores, INR125 crores to INR150 crores a quarter, which is low double-digit profitability, which is also consistent.
Then we do these small projects, which is of the order of INR100 crores to INR150 crores a quarter, which is 5% to 7% profitability, which is also in-place steady business, growing reasonably well. Now we come to the problem childs. The problem childs are large projects, which is right now primarily basically government the projects and FGD. This has been negative profitability and in this last quarter was negative profitability to the tune of 20 plus crores, yeah, Rajendran? If you can — one second, I’ll give you that number. So, of that number, I would say, look, what do you call one-off and what’s not. I think the way we have we have performed what I can say is — yeah, anyway, I’ll pull that. But together between — so on these, the two worst projects that we had, MPA, which was Mython and NRL both together basically are giving about negative INR20 plus crores of profitability and of which Mython hopefully is out-of-the — out-of-the books now from a loss-making.
Now the claims that we have on the customer, the positives from that should start to show-up and the money released from the customer, which because of withheld amounts show-up as losses for us, that also is starting to reverse in January itself. So overall, within these particular portions, I expect a reasonable amount of profit.
Finally, if I may take the last block is CBG, which is which was negative INR12 crores this quarter. We have reached a point where our plants are starting to stabilize. They are starting to stabilize at a level which is below our commitments, yeah, across-the-board.
Operator
Does that answer your question, Bhavin?
Ashish Bhandari
I may continue. They are starting to stabilize below our commitments and starting to stabilize at a level where we are in the and I’ll choose my words carefully yeah we are at least according to two of the biggest names in the industry, we are the best-performing of their plants.
And from a capability perspective, customers that are deeply appreciative of the pain that Thermax has gone in getting to this particular point. Yeah, so Bio CNG over the last year-plus has seen a INR100 crore-plus investment from Thermax beyond what was expected in those projects. But the fact that we still haven’t reached what our — our target was leave something open. And we haven’t reached this, nobody in the industry has reached where the economics are on the industry, in my firm belief, it is not sustainable. Yes, something has got to change. I believe strongly that something will change because the industry makes a lot of sense for the country. But in the last six months, you would have seen nobody has made moves on any of their bigger projects because nobody can see how the economics will work given where things are.
So, I don’t know if anymore, we are now getting to the point that multiple of our projects are going to hand over to the customer, which means the running of the plants, the people that we have at those plants. So currently, if you imagine, there are six plants that we are, seven plants that we are operating, which have got 80, 90 people at each plant, 60 to 90 people where we are paying for those people on a continuous basis. All of these six, seven plants are in some level of maturity now, actually six, not all seven, six out-of-the seven plants, I mean some level of maturity and at least three of them have got discussions of handing them over to the customer imminently, like one should start the final set of testing within the next week itself, that level. So that is what I would share.
In our estimate for next year, we have taken that in the second-half of next year, we will start to take orders again. Yeah, in this, because in the whole bio CNG, we have taken just one order this year, which was again at the beginning of the year and we have taken nothing else. And we just want the plans to stabilize our risk profile to be understood, technology limitations to be understood before we do anything else.
Okay. So I’ve shared I think fair amount of detail on what else is going on within these projects. Yeah.
Bhavin Vithlani
So this is very helpful. I just had one more question. On the — in the products piece, we have seen very…
Ashish Bhandari
I think we’ll come back here, we’ll come back on the products piece then, because, yes, there’s a lot of people, Bhavin, and I’ll stay a little longer if needed. Beyond the call, if you guys have questions, I’ll come back and-answer this.
Bhavin Vithlani
Absolutely. Thank you so much for taking the question.
Ashish Bhandari
Thank you.
Operator
Thank you. The next question comes from the line of Jonas Bhutta from Birla Mutual Funds. Please go-ahead.
Jonas Bhutta
Yeah, thank you for the opportunity. Ashish, if you can speak about two other sort of products or technologies that we were looking at beyond the piece, which is coal gasification and heat pumps. While in our probably previous interactions, you’ve mentioned that both these projects or products would need some bit of government support without which commercial sense is not yet prevalent, given that what we’ve seen with the budget and the government stance, particularly the central government stance towards — towards capex, you know where in the overall picture now you see these technology sort of picking-up for you, particularly is it — has the timeline moved away from one year two years to maybe five years from now? You can speak a bit on that? And that’s my only question. Thank you.
Ashish Bhandari
Okay. Thank you. And I’ll take. Coal gasification is dependent on government. Heat pumps, absolutely not. Yeah, heat pump is a product. The first one is a project in a capability thereof as well. On coal gasification, the government has — has part of its kind of incentives to the industry. Last year had floated projects in category A, category B, category C some of those winners of those incentives have also been announced. There is one partner out there who in Section C has won a project-based on Thermax’s technology and capability.
And even in project section 2, there is someone who is looking at Thermax as a partner for what is being looked at. I’m still not sure on the commercial viability though, which is why we are not talking about it anymore. Yeah. And whenever things clear and the — and any of these projects achieve commercial closures, then we will come in — come and share success. There are also discussions with the fertilizer ministry and others that are continuing. But I would say overall less than 50% probability.
Heat pumps are starting to take-off. This was just a baby and it’s completely product-driven. We see tremendous potential for this. We want to make this business think last quarter, what we call as a Sustainex portfolio, we crossed INR50 crores on the product side, which was zero previously. We want to make this business much, much bigger in the future. This has got fair amount of application-based selling and but the applications are across multiple industries. The savings to the customers are also quite substantial. And our capability from a product side are differentiating. So it’s a reasonably profitable product set, which we look to grow.
What can it be in a couple of years? It could be, I think, INR200 crores, INR300 crores worth from zero now but products take some time to establish. You don’t go from zero to a 1,000 crores or INR500 crores instantly every year more people get used to it, etc., etc. So that’s the roadmap, but we are very happy with what the product is doing for our customers. Some really good success stories.
Jonas Bhutta
Great. Thanks for your answer. Appreciate it, and all the best.
Ashish Bhandari
Thank you.
Operator
The next question comes from the line of Bharat Sheth from Quest Investment. Please go-ahead. Bharat, please go-ahead with your question. In case if your line is on-mute, please unmute it.
Bharat Sheth
Yeah, yeah. Thanks for the opportunity, sir. You have dwell little more on this Bio CNG. So that one is on the operating — I mean there will be business economics. So do we think the way I mean government intervene in the ethanol side, any kind of action are we looking for, I mean, to take it off this Bio CNG in a bigger way?
Ashish Bhandari
Yes. Yeah, the simple answer is yes. If you take a look the — on the CNG, Bio CNG pipeline and the — I’m talking about the — the value chain on. And I’ll take you through all the other parts. There was an expectation that from a portion of rice straw, you would get a conversion. And say the conversion rate is that you expected was x. In reality, the conversion rate that you are getting is somewhere between on a consistent basis is somewhere between 0.5 and 0.75 of x, and for a variety of different reasons because the whole-system is extremely complicated and — and the smallest changes like rains happen, moisture changes, the digestability of the solids change, you mix things and so there are lot of things that are preventing it from reaching what could be its theoretical maximum.
So, the question is, does a business case exist at this lower throughput that you would get from the plants? The answer is yes, in my view, but it will require support because first the price at which CNG can be sold, bio-CNG can be sold is set by the government. And the government needs to change that plain and simple, just the way ethanol has been looked at, this also needs to get looked at. And unlike in LNG, where you practically pay somebody outside of India and accounts for fair bit of imports to the country, Bio CNG creates a cuts down pollution, provides income to farmers to an entire ecosystem of logistics players in the in the between creates significant amount of jobs. Each 20 TPD plant will create 200 to 300 jobs for the ecosystem. If you’re doing hundreds of these plants, you can imagine the jobs that it creates, an overall system that makes the country self-reliant, cuts pollution, all of that. So that portion comes into play.
The last portion, which is also very, very important is that while a portion gets converted into bio-CNG, there is an even bigger portion that comes out as digestate, which is actually organic fertilizer, which today gets no subsidy at all, whereas a fertilizer in the form of urea, which is an organic fertilizer gets a huge amount of subsidy. So the industry is lobbying that at least some amount of subsidy should get provided because this has the opportunity to replace an organic fertilizer and provide a very important need back to the soil. Then you have got this whole issue of carbon credits, the ability to put this into the national pipeline, which is the framework of pipelines that are converted, the ability to put green gas in one place and to be able to take-out green gas at the other side. So there is a whole process framework that also needs to come in.
Finally, there is a state subject, which is the price at which the feedstock is provided to this industry because if that fluctuates, then again, the industry becomes unviable. So there’s so many moving parts and every portion of this moving part is being worked upon by the government because there is an understanding that the economics don’t work as it is, yet it is very important to make this industry happen. So I’ve given a big lecture in a wait, but hopefully I’ve shown you everything, the good, bad and the ugly of how things are right now.
Bharat Sheth
Yes, sir. Second thing, just in addition to this, do we are working only on a rice or we have a multiple — well, feedstock?
Ashish Bhandari
We are working on rice straw, we are working on Napier. We are working on Prestmart and we are working on MSW. So we are working on all feedstocks that are relevant. The rice straw is the toughest of the lot, but potentially has the biggest upside.
Bharat Sheth
Okay. Thank you and all the best, sir.
Ashish Bhandari
Thank you.
Operator
The next question comes from the line of Harish Bihani from Kotak AMC. Please go-ahead.
Harish Bihani
Yeah, good afternoon, Ashish. Given the pulls and pushes going on right now, how should one think about FY ’26 in terms of revenue, profitability and order inflows?
Ashish Bhandari
We won’t provide outlook for that for long. Q4, I have done just because I needed to give a very clear understanding that Q4 — Q3 was a bit of an aberration and would like to see Q3 and Q4 looked at as a conjunction and fair amount of confidence for Q4. As we go into next year, I will share some directions and I will share some amount of portions around it here.
Internally, especially on the projects here, we can see on the product side, we have shown that we have increased our backlog and we have continued to show strength out there. Chemicals also — while on the revenue side, we had a bad story, which also will reverse in Q4. Yes, we expect chemicals to be a very good story for Q4. Overall, good growth for next year as well. Yeah, continues to be decent. FEPL, where we have had quite a few losses this year, we expect those losses to come down substantially next year, though even next year would be a loss-making unit for FEPL with breakeven the year-after.
Yeah. But — so that then leaves on what can you expect on the project side? Yeah. And there, we are working with some amount of puts and takes. Overall, my net-net expectation is a good year next year based on the overall pipeline that we have. Lot will depend on whether we are able to bring some projects in Q4 back into the mix, which will set something.
And I’ll share with you one part, which is important, yeah, which is in these large projects, we have close to 80 crores to INR100 crores of base cost setting, yeah, which means we need INR1,000 crores worth of projects to take that base cost and get divided and some of it is corporate overheads and everything. So I’m including all of that. We need about INR1,000 crores worth of projects out here, which means we need about — in a year, which means I need about INR250 crores to INR300 crores, which are basically continuously coming in that we are able to execute through this through this portion. So that the base cost portion gets taken care of. Yes. So while the project itself, what remains may have reasonable amount of profitability, I need this base cost to get covered and which means I need project inflow, yeah.
And for the last 3/4, we have had no project inflow here. So if the project inflow reverses, which means I can get a base cost that is taken care of, then I’m reasonably okay with my profitability for next year. But if I can’t get new projects and I have to go work this base cost in addition to everything else, then I potentially have a challenge. So I’ve shared in very, very openness kind of everything that we are working through. Overall, the pipeline looks decent.
For the first time, we have a reasonable amount of bigger projects and we want to start seeing that work-in this quarter itself, yeah, and start to show success this quarter. As I’ve said, this quarter, I expect what we are planning for is revenues and orders north of INR3,000 crores and profitability north of 10%.
Harish Bihani
And follow-up — a quick follow-up is on the project business. You’re seeing orders coming through in January, INR200 crores what you mentioned?
Ashish Bhandari
Yes, this is just on the — this portion of projects on, yes, EBWS will also have a decent Q4. Yeah, I’m starting to see movement. Yeah, the reason I don’t want to put a number is because some of this is competitive. I know in the last 24 hours, we have lost one big project as well. So there’s things that are moving for sure.
Harish Bihani
Sure. Thanks. All the best.
Operator
Thank you. The next question comes from the line of Subhadip Mitra from Nuvama. Please go-ahead.
Subhadip Mitra
Good afternoon and thank you for the opportunity. Sir, in your opening comments, you mentioned that you had a rethink on the thermal side of the business where you’re seeing larger supercritical orders coming up. So if you could help us with a little bit more color in terms of what is the size of this market that you’re seeing over the next couple of years spread between, let’s say, government and private and whether the tie-ups on your side for the turbine generator also in-place?
Ashish Bhandari
So, very clear, we won’t do any tie-ups. We won’t do any EPC that gives us long exposure to civil construction, all that, which is why we — the government projects in their previous, we did not bid.
There are some private players with whom we are in discussion. Some of it could be moderately advanced as well. We don’t know-how those projects will go. We are comfortable with our capability to execute and work on these projects. We are not comfortable with taking like what happened in FGD, four, four, five, five-year projects, high civil construction where the space is changing, something happens, then you’re working one more year, all that we don’t want. If it — if a bigger portion is driven around our manufacturing capability, our delivery of goods and equipment and all of that we are open to. There are some discussions on those fronts. We are — we are into, let’s just see where they go.
Subhadip Mitra
So just as a follow-up, how large is this opportunity turning out to be?
Ashish Bhandari
So look, each project even just the turbine itself for say it’s 2 to 660 portion, just the boilers, sorry, not the turbine, just the boilers. This is without the FGD, the pollution control equipment, everything else, just the boiler itself is a couple of INR1,000 crores.
Subhadip Mitra
Understood. And is there any TAM that you’re looking at for yourself, let’s say, in ’26 and ’27?
Ashish Bhandari
No, we are not looking at a TAM because all of it depends on the scope of these projects. If they come in as integrated large projects, then our TAM in our SAM is zero, time you can do whatever you feel like. If they come structured correctly, then the SAM can be very big, just depends.
Subhadip Mitra
Understood. Thank you so much.
Operator
Thank you. The next question comes from the line of Parikshit Kandpal from HDFC Securities. Please go-ahead.
Parikshit Kandpal
Yeah. Hi, Ashish. My question is that this year we have been impacted by losses in CVG, FGB, DW, minor losses in TBWES and. And now in Q4, you expect to cross double-digits. So for — and also you commented on that new orders in the 4th-quarter looks to be very strong and pipeline is also strong, which means that our volumes will also significantly increase next year. So from next year onwards, do we expect high single-digit margins like 9% to 10% coming back or do you think still there are challenges which will impact the margins rewarding to double-digits?
Ashish Bhandari
See, I think look at our mix as a mix of four companies. Yeah. So I will not give you direction on a combined Thermax because if we get big orders on industrial infra that are lower profitability, we will take those. We won’t say no. In Industrial products, we are working towards getting to that 10% number, but do realize that and crossing that as well. We’ve been at the — at the boundary of that a couple of times. I think in this particular quarter, as we cross a reasonable revenue threshold, we’ll cross 10% as well. Chemicals is also reasonably profitable. And I’ve shared my look on FEPL. Total, overall, is reasonably strong as well.
On projects, if we get good projects, we will — we will not say no to them. Yeah, projects are negative working capital managed well. They are — the return on investment, return-on-equity is very-high and projects give rise to future services, future lot of good things. So we will never say no to a good project. And even if it’s at lower profitability, we will do those and lower profitability from a mix perspective. On the — so if I take a look at what is my expectation next year for profitability on the project side, this year was if so-far we are at the 1% to 2% kind of number, I expect us to cross 5% next year. Yeah, that would be my expectation.
And I don’t want to give a bigger number or a different number immediately is because I am still working on this base cost challenge that I talked about. Yeah. And so for me, the order intake in these next six months, next five months and assuming the first month went okay in this next five months is very, very important. And so that is what we will — we will look at.
Parikshit Kandpal
Just on the cost again, Ashish, this INR100 crores which you have invested in CBG, so is it — shall it be classified as R&D or how does one look at it because you keep on investing in all developing these technologies. So whether it should be classified as — should be capitalized or should be expense? So, how do you take a call because it impacts our margins?
Ashish Bhandari
So very, very good point and I’ve been really asking that question as well. The reason it is expense and the reason it should be expensed is that — and this is — you can blame me as the leader is that we chose to take these in as orders and we are executing them through as orders. Yeah, the reverse was to invest it as R&Ds, do the INR100 crores as a hit, set-up your plant as a demonstration plant, waste — I mean not waste, spend three years stabilizing the technology and then kind of going out. That would be R&D.
The reason because we have taken customer orders and we built something that did not work. We took it down, build something different times. So if we have — this is against a customer order, then it’s fair that it should get expensed because we took a revenue against this as well that we are revenue that we will look to portions of it that we have already recognized, portions that we will continue to recognize. So that’s the — that’s the difference. Yeah, plain and simple.
So in nine months, what will be this quantum of investments or R&D nature kind of investments which you have done and taken out? And between this, we have — I think more than INR100 crores is spent and another 2030 that we think we will be spending we have already recognized as part of our numbers already so-far. Yes, some of it was against profits that were expected in this business. So not everything shows up as a loss, but a good chunk shows up as a loss.
Parikshit Kandpal
Okay. Sure. Thank you, Ashish. Those were my questions.
Operator
Thank you. The next question comes from the line of Amit Mahawar from UBS. Please go-ahead.
Amit Mahawar
Hey, Ashish. Great to see industrial product doing very, very well on growth and profitability. I just have one simple question, Ashish. If I compare the trajectory of industrial product vis-a-vis industrial infra, I just want to understand and ask you maybe, when you appraise your sub-leaders, it’s on orders, margins, cash recovery, are we more proactive or reactive when we decide the contract like FGD? The nature is very well-understood. So how will you — how will you navigate going ahead to see that a lot of good work is not gone wasted with sort of large projects which are beyond our control, because these are outside our factories also, right, when we do vis-a-vis…
Ashish Bhandari
Completely. And Amit, you can see here the push that we have had and take Supercritical as an example, the order — the project that we were qualified for, which ultimately went to the state PSU and I don’t know if it has — the price bids opened, that was north of INR6,000 crores. Yeah. And we were very much in our costing in that range.
To say no to something like that, when you are working with a INR100 crore cost challenge on the project side, the amount that it took for the for the company to say no to something like that. So, if you’re asking for are we taking some of those as tough calls? We are taking those as very, very tough calls and taking it on the chin. Saying that what is the point of working so hard if you’re not making money at the end-of-the day, yeah.
So — and on the project side, some of what — and our portion of government has come down substantially as a result. Here we are still working through a backlog, which we will continue to. But government we have cut-down. We’ll reach a point pretty soon and refining and petrochemical in particular where government projects will come back and we will bid. But we will bid with a clear understanding that we have to make money with a much deeper understanding of our costs of civil and construction where costs have gone up quite substantially in the country post-COVID, yeah. And we all have to realize that. And I think a new baseline is set post COVID in terms of these costs. So that part is there.
In industrial products, the exposure to government projects is zero. Yeah, where we even do projects, it’s like we are setting up a desalination plan for a semiconductor industry or something where the project may get executed over 13 months, 14 months but the core building block we know very well the stuff around it is also very well-understood. The government exposure is not there and pretty much all of our business is LC based. So the — which is why you would see in general, Thermax does reasonably well on converting our revenue to cash is because majority of your business is LC based. Yeah, we don’t do anything on payment terms where the risk of payment is there.
Amit Mahawar
Sure. A quick one on-strategy. You are trying to improve the — sure, sure. Sure, Ashish. Thank you. Thank you. Good luck.
Ashish Bhandari
Thanks.
Operator
Thank you. The next question comes from the line of Anupam Goswami from SUD Life. Please go-ahead.
Anupam Goswami
Hello, sir. Sir, if you could just highlight how the growth you’re looking, you mentioned about some large orders are on the pipeline, but if you are becoming a little choosy on the order side, how do we see the growth rate from here onwards versus the last two quarters where you have mentioned the last past two orders, the growth has been quite on the higher side and we are not expecting anymore. So if you can just throw some light on that?
Ashish Bhandari
So — but the growth last two quarters as it mean on the higher side, we’ve been working with zero on these projects. Yes. So anything that we do starts to — starts to give some amount of growth here. I’ve been saying we are — we were at that INR2,000 crore INR2,300 crore number, which is our base business and that is all that we did. Yeah, even TBW, yes, on the product side, I mean on the TBWS on services and boilers. On the boiler side, barely did INR300 crores last quarter, where the norm for that business is INR500 crores to INR600 crores and INR200 crores on services.
So the services portion did very well, but the product — I mean the equipment portion, we had a very bad quarter last year — I mean last quarter. And even in January, that has started to reverse, yeah, like at least on TVWES, what we did in the whole quarter last quarter, in January alone, we have had three orders, one of which is part of the INR200 crore-plus that I talked about. So we are reversing that, yeah. And the overall pipeline is of the order of few thousand crores. Yeah, our win rates are typically, like you can assume a reasonable win rate. And then of that number, how many actually closed remains to be seen. But overall, I expect things to be much better than what we have had the last two quarters.
Anupam Goswami
And so, significant improvement in the industrial infra segment will be more on next year?
Ashish Bhandari
Yeah, that is where I’m talking about here. Industrial infra, the backlog of domestic industrial infra is down to the lowest we have had in a very long period of time, yes. So that needs to grow up because that was also the portion where we were doing government projects, which we said we want to do less of going-forward or we choosy on in terms of what we want to do.
Anupam Goswami
Thank you so much.
Operator
Thank you. The next question comes from the line of Aashish Shah from Asian Broking Private Limited. Please go-ahead.
Aashish Shah
Yeah, good afternoon. My question is regarding Bio CNG. In your Q3 presentation, you have mentioned that the GAAP output achieved in June ’24 is repeated in Jan ’25. Can you give us some insight on to the rate recovery? Would it be possible to quantify? Do you believe that the industry average is about 6% or 7%?
Ashish Bhandari
No, no, I did not get the question at all and I’m trying to open up my presentation to understand what is it specifically that is being talked about. Could you be a little clearer in terms of in terms of what the question that you asked, please?
Aashish Shah
The gas output.
Ashish Bhandari
Gas output?
Aashish Shah
Yeah. From the plant in June ’24 was repeated in June 20 — Jan ’25.
Ashish Bhandari
June ’24, okay. So this is our flagship which is the first installation in — which is in Duri, where on a digester we had reached a particular production, which was — which we were very happy with. But then there were lot of mechanical failures on the agitator designs and all that. So we had to shut the entire process down. We had to redo to redo the whole bit in terms of how the mixing happens in the and literally start from zero again, which took us a long-time.
And initially when we started, we could not even repeat the performance from a year-ago for a very long-time. But in the last couple of months, now we are consistently reaching that production and hoping to go beyond that as well. Yeah. And — but now it is not just at one plant. We are starting to show success at multiple plants and there is one plant which started after Dhuri, which is producing very well across the whole plant where we have started to feed 100 tons of feed on a regular basis and getting a reasonable amount of production as well where the customer has indicated, they would take-over the — basically the O&M will go from the project portion into the services and O&M portion.
Aashish Shah
So sir, would it be possible to quantify the yield recovery because the industry…
Ashish Bhandari
Cannot do that, because these are strategic competitive numbers and there is still lot of — basically R&D and improvement going on here. So that we will share only and also that belongs information to our customers. So I will not share. I will say there is a lot of noise in this space for sure. Nobody, not and including Thermax, nobody is meeting the numbers that were committed originally. Off the set that is getting better now, I would say we are in the top-quartile.
Aashish Shah
Thank you. All the best.
Ashish Bhandari
Thank you.
Operator
Thank you. The next question comes from the line of Mahesh Patil from ICICI Securities. Please go-ahead.
Mahesh Patil
Yeah. Hi, sir. Sir, my question is on the chemicals segment. You said that Q4 is expected to be substantially better for this segment. So can you give some details on why do you think that? And one follow-up question on this segment is that the profitability seems to be a bit lower in the nine months. So if you can explain that? Yeah.
Ashish Bhandari
We have gone both points here. See, chemicals, I was — we were very unhappy in the way chemicals finished because part of when I said INR500 crores that we were not able to recognize as revenue, a portion of it was the most profitable portion of chemicals and it had a slight mix impact which also affected chemicals. And so chemicals profitability was low. January for chemicals has been it’s by far its best month for more than quarters. Yeah. And everything that the business committed in December, at the end of December, which got missed was delivered in January on-top of January’s original commitment, yes. So we have bridged the gap in and thereabouts. We will have a reasonable year in chemicals by the time we finish on profitability overall.
There is some portions of chemicals, which may look like is dilutive, but is actually not — it is dilutive, but it is important because we are looking to grow chemicals substantially. Yeah, we are investing heavily in-construction chemicals. We are also getting into flooring, which is also the Webro partnership that we had announced. And very soon, we will announce one more partnership, which also will take our chemicals business into one more segment that we are very, very excited about. And then, we did the Buildtech acquisition as well, which also got announced as well.
So overall, through all of these new things that we are doing in chemicals, we have some costs that we are taking on, but that is part of a larger strategic shift in chemicals where, as I’ve said, we want to grow chemicals substantially. Some portions of it, you will start to see already, as you’ve seen as announcements, couple more announcements you will see, the improved top-line and a consistently decent bottom-line, you will also see starting Q4. Yeah, but I think if we did not do the growth things that we want to do, chemicals profitability could be even better. But right now, we are investing in portions of chemicals also, which is why some numbers like adding salespeople, integration expenses, some consultants that we are hiring. So, all of those expenses are also showing up on the chemical side.
Mahesh Patil
Okay, sir. Thank you. And sir, if I may…
Ashish Bhandari
That you saw as PBIT, that was an aberration that 16% to 18% number and you will start to see even on an aggregate basis in Q4 itself.
Mahesh Patil
Okay, sir. Thank you. So if I may have one more question on the industrial infra side, the export orders that we had received last quarter, right…
Ashish Bhandari
Patil, there are still lot of questions, if I may, please, because there are many who had second questions. If there was a follow-on question on chemicals, I would have taken it, but I’ll let it go. I’ll go on for another 10 minutes. I understand there’s still quite a few questions. I’ll go on for another 10 minutes, please. Thanks.
Operator
Thank you. The next question comes from the line of Teena from Motilal Oswal Finance Service Limited. Please go-ahead.
Teena Virmani
Hi, sir. Thanks for taking my question. Sir, if you can please highlight what are you expect — how are you expecting the scale-up in and FPL from the current levels in terms of new order inflows and in terms of revenues? And what kind of investments now are being targeted in these two entities? Because earlier you had indicated that you would intend to invest somewhere closer to around INR1,000 crores INR1,500 crore over a period of time. So is there any change in that thesis? And also on the margins in the current quarter for this business, they were also impacted. So any specific reason for that?
Ashish Bhandari
Yeah. So, both of those I’ll take on. We love the business. We would like to see more orders. Yeah. And so-far this year has been below our expectations for orders. Profitability, everything else we like a lot. Q4, we have got much bigger order expectation on Tosal, which is basically the expectation is that we get INR75 crores kind of INR50 crores to INR100 crores worth of orders just in Q4, which actually means a pipeline of INR1,000 crores, because you can use a rule of thumb of tennis to one. Some cases it’s even more than tennis to one, but that’s a reasonable you can you can expect that.
SEPL was a very disappointing quarter, not that the team could have helped anything. We had floods in Chennai and our site got affected again. Yeah. So our site was in a 40 year once in 40 year kind of event that should happen. We have had two in two years. Yeah, and that has been — so that affected execution of the next phase affected current-generation and affected some of our commitments to our customers. And so we are working with insurance, we are doing everything, but we have now decided that we will move that site and do the installation, not at this current site, but at a slightly different site that is close by, but that is not in even in a 40-year flood zone. It is beyond the 40-year flood zone. That is the decision.
And some of the costs related with this moves, all of it came into this particular quarter. Yeah, overall, next year, we are still expecting a loss in FEPL, but a loss which is much, much lesser than the loss that we have taken this year. I suspect that with the quarter 5 point reduction in interest rates, there would be a further improvement than what we had planned even until — until the close of last week. Yes, so that bit.
In terms of our expectations on how much we want to invest in FEPL, the number of getting this business to-1 gigawatts and investing another INR500 crores approximately, that still holds. But we have stretched the timeline. If you were previously looking to accelerate the timeline, we’ll now invest it over a two-year period and slow it down to more profitable expectations and a higher generation and a higher IRR expectation. So there are some fundamental changes that we are putting in the FEPL business. The team has showed that they can execute to these higher expectations. There’s a big pipeline that is possible even at the expectations that we have set but the investment now will have in one additional year of investment, not across the 12 to 18 months that we had originally talked about.
Teena Virmani
Sure, sir. And any idea Nine-Month investment — Nine-Month FY ’25 investments in these two entities put together total and FPL?
Ashish Bhandari
If you can see that both of those are legal entities. We share fair amount of detail on them.
Rajendran Arunachalam
The full-year is not available to them. I can again.
Ashish Bhandari
Okay.
Rajendran Arunachalam
So, roughly, the investment in APPL this period, I’m talking YTD, on the equity side has not been very-high against INR20 crores plus, but we also advanced some to loans to them and for the build of those projects and that has increased at this time and that’s gone up by — the overall loan debt in APPL has gone up by close to about INR300 odd crores. That’s on the ADPL side. Total I think the self-sustaining situation and there I think our loans haven’t gone up that high because of the accruals that are there.
Teena Virmani
Sure, sir. Thanks a lot.
Ashish Bhandari
Thank you.
Operator
The next question comes from the line of Amit Mahawar from UBS. Please go-ahead.
Amit Mahawar
Yeah, thanks, Ashish for the opportunity. In your — in your strategic intent and direction to expand the visibility of Thermax, right? It is broadly underrepresented globally and in India also. Do you think, ’26, ’27 growth for the first segment where we are doing very well can still be in high-double digits with even upside on the profitability side. Some color on this segment, Ashish? Thank you.
Ashish Bhandari
So, interestingly, this portion of our business has been driven by couple of macro shifts and at the back of in some product innovation from within the business as well. So both things like water-wastewater have benefited tremendously from a larger push towards zero liquid discharge, desalination plants, variety of new industrial plants coming in, requiring capacity additions, etc. We have also had norms through ethanol industries or otherwise semiconductor plants coming in where the need for basically cleaner air pollution control equipment, scrubbers, gas management, etc., have also gone up. Internationally also, the shift towards biomass and waste-to-energy has helped the business quite a bit. I think all three themes will continue into next year.
Also, at the — the innovation that we are doing through heat pumps, gas upgradation, zero liquid discharge, we are coming up with new products that will use much lesser energy that than anybody else would have. Variety of different things, we are also pushing on the services side, some new models and looking to grow profitable services out here significantly. We’ve got one of the top consulting firms engaged on just services and industrial products and making sure that services growth to double what they are in a very short period as part of industrial products and services are the most profitable part of industrial products as well.
International growth, so it is possible and being planned for as well that the growth that we have delivered, we are continuing on that treadmill and we continue to push the boundaries of what is possible out here. The only question which got discussed quite a bit in our Board retreat was what will the macroeconomic environment be like. And if there is a general significant slowdown in the macroeconomic environment because of global trade wars and currency fluctuations, etc. That is the one concern that we have. Going in, we are bullish.
Amit Mahawar
Thank you, Ashish. Good luck.
Ashish Bhandari
Thanks.
Operator
Thank you. The next question comes from the line of Bhavin Vithlani from SBI…
Ashish Bhandari
Last question, if that’s okay.
Operator
This question is from Bhavin Vithlani from SBI Funds Management Limited. Please go-ahead.
Bhavin Vithlani
Yeah, thank you for the opportunity. The second question that I had was on the products business. We have seen double-digit margins now and they are slowly being inching up. Do you see a possibility of the margins getting into early to mid-teens on a three-year basis, I’m not asking for a quarter?
Ashish Bhandari
I think I just answered that question, no. This is industrial products multiyear outlook. Is that — was that the question, Bhavin?
Bhavin Vithlani
The question is on the margins front.
Ashish Bhandari
Yes, so I shared. I think I’ve shared fundamentally what is the — what is the outlook. Maybe the one additional color that I can provide is within the industrial products, we’ve got four sets of products, yeah, which is we provide cooling solutions, heating solutions, air pollution control solutions and water. Of this mix, the heating solutions is the most profitable one. Right now of the four, it is below the pack of — of the growth that is happening. All four are growing, but heating is relatively growing less fast than the — than the two of the other parts that we have got going.
So, there is a small mix change, but overall, there is nothing that should slow us down in terms of the path that we are on. Of continuing to make this business stronger. If we are able to grow services, services adds one more engine of profitability out here. And if you’re continuing to innovate and grow in places where we can command a slight amount of premium as well like in international markets, then further is possible. I will caution though that everything that we do has fair amount of competitiveness, while we are increasing profitability in good portion of our business that is me-too, there is a lot of competitiveness and customers will switch for small, small movements in price.
Bhavin Vithlani
Thank you so much for taking my question.
Ashish Bhandari
Thank you.
Operator
Ladies and gentlemen, that brings us to the end-of-the question-and-answer session. I would now like to hand the conference over to Ms. Bhoomika Nair for the closing comments.
Bhoomika Nair
Yes, sir. Really appreciate the time and the detailed answer and taking all the questions. Thank you again for giving us an opportunity to host you. Thank you very much and wishing you all the best.
Ashish Bhandari
All right. Thank you very much. Thanks, everyone. Thank you for listening-in and I know there were lot of questions and we’ll provide — continue to share as much as we possibly can. Thank you.
Operator
Thank you, ladies and gentlemen. On behalf of DAM Capital Advisors Limited, that concludes this conference. You may now disconnect your lines.